5 Major Divisions of Economics

Divisions of Economics

Based on the subject-matter, Economics can be divided into Consumption, Production, Exchange, Distribution and Public Finance. They are briefly explained below.

5 Major divisions of Economics

5 Major divisions of Economics

1. Consumption

Since the existence of human wants is the starting point of economic activity, we study consumption first. In this, we study about the consumption of wealth for the satisfaction of human wants. In this division, we study about the characteristics of human wants, the behavior of the consumer, diminishing utility and consumer’s surplus, etc.

2. Production

This division covers the factors of production viz., Land, Labor, Capital and Organization. The laws governing production, mobility of factors and the role of factors are studied in this division.

3. Exchange

In this division, we study about trade and commerce, money and banking. Consumption will be possible only if the produced commodity is placed in the hands of the consumer. For this, trade and commerce are essential for the movement of goods and services from one place to another.

4. Distribution

Production is the result of the cooperation of factors of production. Since a commodity is produced with the efforts of land, labor, capital and organization, the produced wealth has to be distributed among the cooperating factors. The reward for factors of production is studied in this division under rent, wages, interest and profit. Distribution studies about the pricing of factors of production.

5. Public Finance

This division studies about the income, expenditure and financial administration of the State. This tells about taxation and expenditure, budgeting and financial administration. Public Finance has been separated from Economics and is treated as an independent branch.

These divisions of economics should not be considered as water-tight compartments. Only for purposes of study, we make these divisions. But in practice, these divisions overlap. For example, when we study about production, we are studying about consumption as well. When we study the production of motor cars, we have to study the consumption of raw materials like iron, steel, aluminum, rubber etc. Similarly production of tables and chairs involves consumption of wood.

Wheat grown in Haryana is used by the people of Tamilnadu. Production takes place in Haryana and consumption is done in Tamilnadu. In between, trade and commerce (Exchange) as well as banking come into the study to effect the transaction. So, all the divisions of economics are interrelated and inter-dependent.

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