What is Economy? Economy is the scientific study of economies. An economy is a field of interaction, production and distribution of goods and services, by many different producers. In economics, it is usually defined as ‘a social field that focuses on the practices, decisions, and material exchanges related to the production, utilization and distribution of resources.’ This definition of economy, however, does not explain how an economy happens. Economists, like other scientists, attempt to describe a process that helps explain how economies happen.
Economists try to explain economy in terms of economic systems. A particular economic system may be called economic system A, but an attempt to describe it in a single word would be Economy. Economic systems are different for every economic activity; production of food, services, infrastructure, inventions, innovations, products, knowledge, capital, land, labor, money, capital goods, consumption, saving and market prices.
Economy in simple terms, refers to the way price of different goods and services are determined. The prices, in fact, reflect the demand and supply of the good in the market place. Economists try to understand and predict the economy; how does a country’s economy operate? What are the factors that affect the economic system? These factors include location of the country, level of technology, capital and of course, consumption of natural resources. All these lead to economic activities and hence to the generation of Gross Domestic Product (GDP).
Economy, in simple terms, is the study of the economic system. It is an attempt to describe in a single term the entire process by which economic systems are generated. In simpler terms, the economic system is the way economic concepts like production, allocation of resources, consumption, pricing and money are realized in the market place. In short, economics is the study of how individuals and communities interact and create economic systems that satisfy their needs. For those who have a long standing experience in Economics, they can say that understanding economy and macroeconomics is the key to sound decision-making.
All economies are characterized by economic growth. The concept of macroeconomics seeks to understand why a particular economy grows over time. An important part of macroeconomics is microeconomics, which looks at why things tend to go in similar ways even when the economy is doing quite well. A perfect example of this is the way that retail sales have been increasing for a period of time; yet, the unemployment rate is still high. The reason behind this is the relatively weak performance of retail sales as compared to overall economic growth.
Economic theories explain why production, allocation of resources and allocation of incomes and costs occur in the economy. Economics tries to explain why these processes occur and what role they play in influencing the level of output, consumption and inflation. Economics helps make sense of economic agents’ behavior and how they affect the system. It also gives tools for the prediction of economic conditions and the determination of the future course of action. All of these things help us to understand how the economy behaves.