Economics Subject Matter

Economics Subject Matter

The basic subject matter of economics is the study how people-individuals, firms and nations-maximize their gains from their limited resources and opportunities. In other words economics is the study of how people allocate their resources to their alternative yes for deriving maximum possible gains from limited resources. For the purpose of economic analysis, people are classified under different categories of decision-makers. They are (i) consumers-the users of all final goods and services, (ii) firms- the producers of all goods and services and (iii) owners and users of resources. The term gain has different connotations for different sections of economic decision makers-consumers, firms and resource users. For consumers, gain means the total utility or satisfaction they derive from the consumption of goods and services; for producers, it is production and profit that they make from the use of resources at their disposal; for resource users especially labour, it means wage income or earning per unit of time; and for a nation, gain means national output, total employment, this standard of living and economic welfare of the society.

Thus, economics as a behavioral science, studies how consumers maximise their total utility; how producers achieve the goal of profit maximization; and how resource owners maximin returns or earnings from the use of their resources. Macroeconomics studies also the working mechanism of the market system and the behavior of the market forces-demand and supply

When the optimizing or maximizing behavior of the people-consumers producers and resource owners is analysed at the individual level, it constitutes a part of microeconomics. The study of price and output determination at individual commodity level is also the subject matter of microeconomics. Therefore, all studies made at the level of the individual decision-makers and individual products constitute the subject matter of microeconomics. 

For the purpose of macroeconomic studies, all microeconomics variables are converted into macroeconomic variable. Let us see how microeconomic variables are converted into macroeconomic variables. The amount that an individual consumer decides to spend on consumer goods and services is individual consumption expenditure. Thais is a microcosmic variable. When the expenditure made by al the individual consumers on all the goods and services are summed up, it gives aggregate consumption expenditure, which is a macroeconomic variable. The study of the behaviors of the aggregate consumption expenditure and its determinants is the study of a macroeconomic variable, similarly the study of how an individual firm decides how much to produce an individual good, say, a Pc, is a microeconomic study, but when one analysis the behavior of the total output of all the goods and services produced by all the firms over period of time, one studies the trend in aggregate production or national output, this makes a macroeconomic study.