There are different approaches to define the subject matter of economics. It can be defined in terms of the basis of represented definitions of economics, economic activities, and based on the modern approach.
Definitions of economics consider economics is the study of wealth, welfare, and scarcity of choice. It means the subject matter of economics traditionally has covered from the study of wealth, material welfare to study how the numerous human wants can be satisfied with limited resources.
Similarly, the traditional view or economic activities consider the study of the continuous economic circle of wants-efforts- satisfaction as the subject matter of economics.
This chain of want-efforts-satisfaction creates different economic activities like consumption, production, exchange, distribution, and public finance, etc., and the study of such economic activities is considered as the core subject matter of economics.
The modern approach related to the subject matter of economics splits economics into two major branches as microeconomics and macroeconomics. These two terms now have become very general in the study of economics.
The term micro is originated from the Greek word ‘mikros’ meaning small. Microeconomics, therefore, is the study of the economic behavior of individual economic units and individual economic variables.
The unit of study in microeconomics is an individual unit rather than the entire economy. For example individual households, firms, and industries.
Thus, the study of the economic behavior of households, firms, and industries forms the subject matter of microeconomics.
Microeconomics seeks to explain how the individual firms decide at what price to sell the product, how much to produce, what amount of production will maximize their profit, and how to minimize the cost of the production.
Thus, it examines;
- How resources are allocated among various individual firms and industries,
- How the prices of various products are determined, and
- Techniques to divide the generated or manufactured output between persons who lend a hand in the creation of this output.
Microeconomics also examines whether or not resources are efficiently allocated. It puts the conditions for the optimal allocation of resources to maximize output and social welfare.
Microeconomics, therefore, is concerned with the theories of product pricing, factor pricing, and economic welfare.
The term macro is derived from ‘makros’ meaning large. Thus, macroeconomics is concerned with the study of an entire economy. The component of the study in macroeconomics is the whole economy rather than a part of it.
Macroeconomics deals with the problems faced by the entire economy. Thus, macroeconomics deals with the functioning of the entire economy as a whole.
It pursues to describe;
- How the economy’s entire output of commodities and total employment of resources/inputs to determine,
- What enlightens the fluctuations in the level of output and employment,
- Macroeconomics explains why sometimes the economy is operating at near-about full employment level,
- Why at some times there is high unemployment,
- How sometimes there is fuller utilization of the resources and productive capacity.
- Why the economy experiences a high rate of economic growth and a lower rate of economic growth,
- Why sometimes economy faces the problems of a razor-sharp mount in prices, i.e., the problem of inflation, and
- At several other moments, why the price level ruins steady or yet cataract, and so on.
Thus, in short, macroeconomics deals with the broader economic aggregates or bigger issues such as full employment or unemployment, full capacity or under capacity or underemployment, a low or high rate of growth, inflation or deflation.
Macroeconomics is so concerned with the study of the theory of national income, employment, output, aggregate consumption, saving and investment, general price level, and economic growth.
Therefore the subject matter of economics covers a broader area and it keeps changing with reference to time, circumstances, the social and economic life of the individuals, societies, nations, and the globe.