Divisions of Economics

Main divisions of Economics:

There are main four divisions of economics. They are production, consumption, exchange and distribution. In current times, economists add one more division and that is public finance. In public finance, we study concerning the economics of government. The economic functions of the current State have risen to a huge extent. Therefore public finance has become a significant branch of economics.


Consumption deals with the approval of human needs. There is economic activity in the world since there are requirements. Whenever a desire is satisfied, the process is termed as consumption. Usually, in plain language, whenever we employ the term “consumption”, what we mean is usage. However in economics, it has an extraordinary meaning. We can speak of the consumption of the services of a lawyer, simply as we speak of the consumption of food.

In sub-division dealing with consumption, we study concerning the nature of requirements, the classification of needs and some of the laws dealing with consumption like the law of diminishing marginal usefulness, Engel’s law of family expenses and the law of demand.


Production refers to the formation of capital. Strictly speaking, it refers to the formation of utilities. And utility refers to the capability of a good to satisfy a requirement. There are three types of utility. They are form utility, place utility & time utility. Production refers to all activities that are undertaken to generate goods that satisfy human needs. Land, labor, capital and organization are the four factors of manufacture. In sub- division dealing with production, we study concerning the laws that govern the factors of production. They comprise Malthusian Theory of population and the laws of returns. We also study concerning the localization of industries & industrial organization.


In current times, no one person or country can be self-contained. This gives mount to exchange. In exchange, we provide one thing and take the other. Goods might be exchanged for goods or for money. When goods are exchanged for goods, we term it barter. Modern economy is a currency economy. Since goods are exchanged for money, we study in economics regarding the functions of money, the role of banks and we too study how prices are determined. We also discuss different aspects of international trade.


Capital is generated by the combination of land, capital, labor, and organization. And it is distributed in the form of wages, rent, interest and profits. In economics, we are not much interested in personal distribution. That is, we do not analyze how it is distributed among various persons in the society. However we are fascinated in functional distribution. Since the four factors or agents of production perform various functions in production, we have to prize them.

Public Finance:

Public finance deals with the economics of government. This studies mostly about the income and expenditure of government. Therefore we have to study about various aspects associating to public expenditure, taxation, public debt and so forth.


We might note that the subject of economics is classified into production, consumption, exchange, distribution, & public finance only for the sake of ease.

We must not look at it in a rigid manner. We should not consider them as watertight compartments. They are associated to each other and they are interdependent too. For illustration, we can’t have consumption without production. The goal of production is creation of capital. And we generate wealth not for its own sake however for the satisfaction of human wants. In another words, we generate goods since we want them for consumption. Therefore the ultimate goal of production is promotion of human welfare. Production is means and consumption is end. Usually, people generate goods for market. Therefore exchange occurs. Exchange is the concerning link among production and consumption. The economic welfare of people in a nation based on how wealth is generated and on how it is distributed. When there is no proper distribution, it will outcome in inequalities of income and wealth. This, in turn, will affect production and consumption. Therefore we find that all the divisions of economics are interconnected and inter-reliant.


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