What Are the Major Divisions of Economics?

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Consumption and exchange are two major branches of economics.
Consumption and exchange are two major branches of economics. (Image: Image by Flickr.com, courtesy of Mike Licht)

Economics is the social science that is concerned with employing society's resources in such a way as to achieve the maximum level of satisfaction of societal needs and wants. Five major divisions in the discipline provide a conceptual framework for studying economic processes and institutions.

Identification

The five major divisions of economics are consumption, distribution, exchange, production and public finance.

Consumption

Consumption is the branch of economics that is concerned with spending by households and firms on goods and services. Consumer spending is significant; it makes up two-thirds of the U.S. gross domestic product.

Distribution

Distribution examines the allocation of the national income among various inputs, or factors of production. Distribution also can refer to the distribution of income among individuals and households.

Exchange

Exchange refers to the buying and selling of goods and services, either through barter or the medium of money. In most economies, exchange occurs in a market, the medium that brings together consumers and producers.

Production

Production involves combining inputs or factors, such as land, labor and capital, to produce goods and services. Economists use a production function to study the relationship between inputs and the goods and services produced.

Public Finance

Governments are active participants in the economy. Public finance is the division of economics that studies taxation and expenditure by governments and the economic effects.

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References

  • The Harper Collins Dictionary of Economics; C. Pass, B. Lowes, L. Davies, and S.J. Kronish, 1991
  • Principles of Economics (3rd ed.), N. Gregory Mankiw, 2004
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