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What Is ECONOMY?

An economy is a place of collective exchange, production and distribution, and employment of other agents by other producers. In simple terms, it is described as ‘a complex system that involve the practices, discursive, inclusive, and productive practices of the people, the state, and the products’. It is also known as the principle economic organism, in the philosophy of Karl Popper. In economic theory, an economy has one mode of operation, which can be described as being inclusive of all possible modes of operation, a kind of dynamic equilibrium in which there is no ultimate authority or power. The term ‘economy’ was first used by John Locke in the 1690s and has since then been used almost exclusively to describe the study of a particular economy.

ECONOMY

A. An economy is based on the value of the resources and the goods produced by labour and other physical resources. An economy based on scarce resources is said to be self-sufficient. For example, if two economies are next to each other and both have abundant natural resources, each economy will be considered as self-sufficient, whereas the first economy relies on the other for its existence. It follows that if the first economy can produce more goods than the second economy can, then the first economy is considered to be the more efficient economy.

B. There are three kinds of economies. The first is the market economy, which is characterized by the operation of markets and prices, without any interference by external agents or by specifications. Market economies are characterized by a balance of demand and supply, and the difference in incomes among agents who sell and buy goods. The other two types of economies are state economies and capital economies.

C. A simple economy, which is not a market economy, is a society in which production occurs through the interaction of individuals with their needs. It is called a self-sufficient economy when there is enough available property and equipment to meet the needs of the community. In this kind of economy, the agents produce their own goods and services, consume the resources and commit to transactions with other people. It is called self-ownership when individuals control the means of production. A society that does not practice self-ownership is referred to as a simple economy. It is a product of human action, and it is possible only in a system of free enterprise.

D. A complex economy, in contrast to the preceding ones, is characterized by a complex interaction of economic agents and a determination of relevant factors by the political authorities. Complex economies face the danger of dearth of available resources due to their exuberance for innovation. Here the consumers determine what they want and how they want it, on the basis of information that they have obtained through education and experience. In this kind of economy, the agents produce and consume goods, obtain necessary resources from production and labor, store the products and services that have been produced, interact with other individuals, create rules of conduct, acquire land and resources for capital investments, etc., and so on. It is called a complex economy because it combines the advantages of economy of scale with features of laissez faire.

The above examples illustrate that ECONOMY is a term that covers a wide range of economic activities. The diversity of aspects of ECONOMY cannot be understood by anyone who has not entered the field. Economics is very much part of our lives, both in the private and the public sector. Economists play an important role in policy formation, guide us in economic decision making, and monitor our performance. Without the contribution of economists, our society could not understand how ECONOMY is formed and evaluate the performance of various economic policies.