BRANCHES OF ECONOMICS
There are two main branches of Economics.
Micro means small. Micro economics refers to a branch of economics which studies the behavior of individual economic units such as; price determination of a commodity (goods), behavior of consumers or producers (firms) etc.
Micro economics is also termed as the price theory. Micro economics also deals with;
• Price determination in the market.
• How a product is made by the firm (individual) producer.
• How income is distributed.
• How wages, interest, rent and profits are determined.
IMPORTANCE OF MICRO ECONOMICS
1. Helps in explaining the functioning of the free enterprises economy. The working of capital economy is based on micro economics.
2. It tells us how consumers and producers make decisions on how to allocate their limited (scarce) resources. They use the marginal approach to determine the part they will gain more.
3. It helps in determination of prices of various commodities in the market.
4. It explains the conditions for efficiency for both production and consumption.
Macro means large. Macro economics analyzes economic problems on national or aggregate basis. Macro economics is also known as the income theory. Therefore Macro economics is a branch of economics which deals with the studies of aggregation and overall performance of the economy such as;
• Total consumption.
• Total employment.
• National income.
• General Price level.
• Consumer price index (CPI).
• Total savings etc.
It addresses issues like the relationship between inflation and unemployment, effects of deficit in the balance of payment, relationship between money supply and general price level.
Thus for comprehensive economic analyze both micro and macro approaches must be adapted.
IMPORTANCE OF MACRO ECONOMICS.
• Useful in understanding the functions of complicated economic systems such as the Command economy system.
• Useful in the formulation of various economics polices in the country such as the taxation policy.
• It helps to provide solutions to urgent economic problems facing the economy such inflation, unemployment.
DEVELOPMENT OF ECONOMICS
It studies the principles and problems concerning economic development of the country.
There are economic statements which show the relationship between economic variables. It shows that a certain thing happens under given economic conditions. It regulates relationship in main economic activities of production, exchange, consumption and distribution.
Lionel Robbins defined economic laws as a statement of uniformity which govern human behavior concerning utilization of resources for achieving of unlimited ends. Example of economic laws is laws of demand and supply.
Therefore economic laws shows tendencies of what happens under given economic conditions thus they express people’s reaction to economic forces Eg In the example about the laws of demand show that consumer tend to buy more as the price of commodity decreases and suppliers tend to supply more when the price of commodity increase.
Sometimes people believe contrary to the laws e.g under given conditions of exceptional demand people with low income demand more inferior goods at higher price that at lower price.
CHARACTERISTICS OF ECONOMIC LAWS.
1. They are not static i.e. they change with time and economic conditions.
2. They are hypothetical i.e. they are based on assumptions.
CLASSIFICATION OF ECONOMIC LAWS.
1. Pure and Natural laws.
These emerged purely from interaction of economic variables such as price and quantity demanded as supply scarcity and choice etc.
These laws can operate in all economic systems. E.g. the laws of demand and supply and the law of diminishing marginal utility.
2. Law of super structure (Government or state law).
These are laws provided by the government or state to regulate or control economic activities. E.g. law of taxation, law of controlling consumption of certain commodities. Law of stabilizing the economy etc.
3. Law of specific economic system.
These are the laws specific to a certain economic system and they control relationship among the people in the process of production, consumption distribution, exchange once a system is replaced by the new system. E.g of specific laws is;
• Laws of private ownership of means of production.
• Laws of public ownership of major means of production.
These are laws which operate in all economic systems whether socialist or capitalist E.g. Demand and supply.
IMPORTANCE OF ECONOMIC LAWS.
1. Guide economic events and serve as a basis for the formulation and evaluation of economic policies Eg the law of demand and supply. Help the tax authority to fix a rate that will not cause a big increase on price.
2. They are useful in planning process ie planner can forecast implication of various plans by using economic laws of what will happen in production if domestic industries are given subsidizing.
FUNDAMENTAL ECONOMIC PROBLEMS.
The main central economic problem is the scarcity of resources in relation to unlimited wants.
There are sources of basic economic problems which exist in societies needed to confident three inter-related questions. These are;
1. What to produce.