Talking about the economy implies talking about all the gears that move the world. And it is that the economy is manifested in all areas of daily life, as well as in all the systems that make up our social model. What are the main branches of the economy?
The word economy, according to the Royal Spanish Academy of the Language, is defined as:
- ” Efficient and reasonable administration of assets .”
- ” Set of goods and activities that make up the wealth of a community or an individual .”
- ” Science that studies the most effective methods to satisfy material human needs, through the use of scarce goods .”
These three definitions denote the essence of the economy, which is defined as a social science that studies the way in which society is organized to produce everything it requires for consumption . The extraction, production, exchange, distribution and consumption of goods and services are part of his study. It also studies human behavior in relation to its needs and its consequences for society.
As all sciences do, economics is divided into study areas delimited by the objective pursued. These areas are known as branches of the economy.
Branches of the economy
There are several ways to segment the study of economics. Due to the extension of the study, there are two branches of economics considered as the main ones: Microeconomics and Macroeconomics. Each of them allows the study of the economy seen from the individual perspective (microeconomics) and from the global perspective (macroeconomics). What are the main branches of the economy?
Microeconomics is known as that branch of the economy that studies the actions of individual agents , also called economic units, in a given market.
An economic unit can be a person, a company, a worker, a landowner, consumers, producers and any other individual or group of individuals that is part of the economy.
The name of microeconomics refers to the fact that its study focuses on the decisions that each individual makes in favor of their own objectives.
Microeconomics focuses its analysis on goods, prices, markets and economic agents.
- Good : it is a material good or a non-material service that satisfies a desire or need.
- Price : is the payment or reward required to obtain the good or service
- Market : is the set of transactions resulting from mutual agreements for the exchange of goods and services.
- Economic agent : it is the actor who makes decisions in the economy.
Likewise, microeconomics has several areas of development, among which we have the most important: consumer theory, demand, general equilibrium, and active and financial markets.
Each of these areas or sub-disciplines are directly or indirectly related, so they cannot be considered in isolation. For example, economic units not only produce goods and services but also require goods and services to be able to produce their own.
Microeconomics uses mathematical models and certain assumptions about economic agents to determine behaviors, which will only be valid if such assumptions are met. What are the main branches of the economy?
Macroeconomics encompasses a much broader field of analysis than microeconomics, as it deals with the analysis of sets of economic units that together make up a country or a region.
The object of study of this science includes the total amount of goods and services produced, the total income achieved, the level of productive resources and employment and the general behavior of prices, all these global indicators of the economy.
Macroeconomics analyzes aspects of the general functioning of an economy, leaving aside individual or sectoral aspects. Macroeconomic models and macroeconomic policies try to represent the following aspects:
- Economic growth : it deals with the increase in income or value of final goods and services produced by an economy in a given period.
- Unemployment : indicates the status of a citizen who does not have a job, and consequently, does not have a salary either.
- Salaries : is the payment or compensation for performing a job in a specified period of time
- Inflation : is the generalized and sustained increase in prices in the market measured in periods of one year.
- Trade balance : measures the relationship between imports and exports.
- Taxes : are the taxes paid to the tax administration without consideration for services.
- Interest rate : it is the amount that is paid for each unit of capital invested in a given period of time.
For macroeconomics, the measurement and studies of data derived from observation and statistics give the signals of the success or failure of an economy. The analysis of these data generates some important indicators, among which we have: What are the main branches of the economy?
- Gross Domestic Product (GDP) : It expresses the monetary value obtained by the production of goods and services in a country or region for a specified period of time, which is normally one year.
- Consumer Price Indices : Through this indicator, the prices of a certain amount of products and services considered basic for the family group are valued and compared with the value obtained a year ago.
- Unemployment rate : Measures the number of people of age and with characteristics suitable to participate in the production process who do not have a job, and therefore, with a salary.
- Interest rate : It is the return that a unit of capital offers in a certain period of time.
There are many approaches to the economy, but all of them can be grouped into two large groups according to the intervention or not of the state as guarantor of the economic game:
Postulate and defend the active participation of the state to solve the economic problems of a country.
The interventionist approach aims, among other things:
- Correct market failures and inequalities
- Achieve additional social welfare, beyond that achieved in the market.
- Protection of public goods for the enjoyment of the public (beaches, parks, etc.)
- Environmental Protection
State interventions can be of different kinds, such as selective taxes, legislation on minimum wages, tax credits, direct subsidies, import quotas, price and tariff control, among others. What are the main branches of the economy?
Postulate and defend voluntary contracts and private property, without the need for state intervention in solving economic problems.
This approach is based on three basic ideas:
- Every rational human being possesses inviolable individual rights , among which the right to life, the right to liberty and the right to private property stand out.
- Political authority results from the consent of free people , having to regulate public life without interfering in the private lives of citizens.
- The rule of law obliges both the governed and the governors to respect the rules, without acting arbitrarily.
An economic system is a way of organizing the economy of a society . According to the existence or not of private property, we find three main economic systems.
They are also known as free economies or market economies. In these economies, individuals and companies carry out the production and exchange of goods and services , setting prices according to the value established by the market, which depends on supply and demand.
In capitalism, individuals and companies made up of individuals produce a good and service that is required by the collective and which they offer for an economic benefit. The value of products and services will depend on supply (volume of the same product in the market) and demand (need for the product in the market).
In capitalist economies the means of production are in the hands of individuals (individuals and companies). Competition is established between individuals who produce the same good and service and offer it to the group, offering the best possible price to achieve the greatest amount of sales. What are the main branches of the economy?
In socialist economies it is sought to replace private property in the means of production and distribution by collective property, defining collective property as that in the hands of organized society. Therefore, a socialist economy implies a conscious collective planning and organization of the social and economic life of a country.
In a socialist economy the production of goods and services does not pursue economic compensation as its primary objective, but rather the satisfaction of the community’s needs.
A mixed economy is one that works under the premises of the free market, with the State working as a deviation corrector in specific cases. In these economies, some of the decisions are made by citizens and others are made by the state.
In a mixed economy, the private property of capitalism coexists with the collective property of socialism , in order to include in the economic system greater considerations for the benefit of the collective. Such considerations may be, but are not limited to: ethics, social justice, sustainable environmental management, and social welfare. What are the main branches of the economy?