Branches of the economy – What is it, definition and concept | 2022

The branches of economics are those divisions or specializations that can be identified within the economic sciences.

That is, the branches of economics are the categories in which we can classify economic studies, taking into account different criteria.

Next, we will present the most representative branches of the economy.

The two main branches of the economy

The main branches of the economy are:

Microeconomics studies the decisions of companies, households and individuals and their interaction with markets. That is to say, it is dedicated to analyzing the economic units or individual economic agents, how each one seeks its greatest benefit and how it interacts with its environment.

Based on the interaction of the agents, the market gives a certain result that translates into a price, a quantity bought or sold, etc.

This branch of economics addresses various topics such as consumer theory, production theory, supply and demand, types of markets, game theory, among others.

Macroeconomics studies the economy as a whole, that is, agents are no longer analyzed separately as in microeconomics, but the country or region as a whole.

Thus, macroeconomics analyzes economic aggregates, which are indicators that explain the total value of a certain variable in a specific nation or market.

Perhaps the most common example of an economic aggregate is the Gross Domestic Product (GDP), which reflects the monetary value of all final goods and services produced in a territory. In contrast, in microeconomics we analyze the production of a company or an individual.

Another of the most relevant indicators studied by macroeconomics is inflation, which is the variation in the prices of goods and services in an economy during a specific period of time.

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Other topics that macroeconomics addresses are economic growth, business cycles, unemployment, poverty and inequality rates, among others.

Branches of the economy according to its philosophy

The economy can also be classified according to the philosophy with which it is approached. Here we can distinguish two branches:

Positive economics is dedicated to describing and explaining economic phenomena in search of laws that allow theories to be built and tested. This, leaving value judgments aside.

That is, this branch of economics performs objective analysis, with a scientific approach.

Normative economics makes policy recommendations or actions based on a subjective perspective. This is due to a value judgment, because it is considered that something “should be” in a certain way.

This view contrasts with positive economics, which is objective. To make the difference clear, we can give an example.

The first premise would be that tobacco consumption is not desirable. Then, the normative economy would indicate that the consumption of said substance should be made more expensive, applying a particular tax to its sale. In this way, it seeks to discourage people from buying tobacco.

Instead, from positive economics, what would be done is a description of the tobacco market, explaining the characteristics of its supply and demand.

Other branches of the economy

We can cite some other branches of the economy that we failed to mention:

  • Agricultural economics: It is a branch of the economy that is dedicated to the study of the agricultural sector, as well as its links with the rest of the sectors.
  • Environmental economics: Studies the impacts of environmental policies.
  • Behavioral: Also called behavioral economics. It studies how psychological, social or cognitive factors are determining factors in people’s decisions. It is framed within microeconomics.
  • Business Economics: Study business processes, in their different activities such as management or marketing. It is part of microeconomics.
  • Information Economy: It studies how information influences the decisions of economic agents.
  • Welfare economics: Its purpose is to direct the economy towards social welfare. It is part of normative economics.
  • Family economy: It is dedicated to studying how resources are managed within households. It is part of microeconomics.
  • Financial economics: It studies how individuals and companies manage their wealth. It is part of microeconomics.
  • Institutional economics: It studies how social institutions influence the decisions of economic agents.
  • International economy: It is dedicated to research on commercial operations between countries. It can be the exchange of goods or services, or even financial transactions (such as when a company acquires another foreign company).
  • Labor economics: It studies how the demand and supply of labor or labor works, that is, the labor markets.
  • Political economy: Study how governments manage the economy. This, based on different macroeconomic variables such as GDP or inflation. Thus, they make fiscal or monetary policy decisions.
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