Economy
What Is an Economy?
An economy is the large set of inter-related production and consumption activities that aid in determining how scarce resources are allocated. The production and consumption of goods and services are used to fulfill the needs of those living and operating within the economy, which is also referred to as an economic system.
Understanding Economies
An economy encompasses all activity related to production, consumption, and trade of goods and services in an area. An economy applies to everyone from individuals to entities such as corporations and governments. The economy of a particular region or country is governed by its culture, laws, history, and geography, among other factors, and it evolves due to necessity. For this reason, no two economies are identical.
Types of Economies
Market-based economies allow goods to flow freely through the market, according to supply and demand. The United States is considered a market economy where consumers and producers determine what’s sold and produced. Producers own what they make and decide their own prices, while consumers own what they buy and decide how much they’re willing to pay.
However, the law of supply and demand can impact prices and production. If consumer demand for a specific good increases and there’s a resulting supply shortage, prices tend to rise as consumers are willing to pay more for that good. In turn, production tends to increase to satisfy the demand since produces are driven by profit. As a result, a market economy has a tendency to naturally balance itself. As the prices in one sector for an industry rise due to demand, the money, and labor necessary to fill that demand shift to those places where they’re needed.
Pure market economies rarely exist since there’s usually some government intervention or central planning. Even the United States could be considered a mixed economy. Regulations, public education, social security benefits are provided by the government to fill in the gaps from a market economy and help to create balance. As a result, the term market economy refers to an economy that is more market-oriented in general.
Command-based economies are dependent on a central political agent, which controls the price and distribution of goods. Supply and demand cannot play out naturally in this system because it is centrally planned, so imbalances are common.
Green economies depend on renewable, sustainable forms of energy. These systems operate with the end goal of cutting carbon emissions, restoring biodiversity, relying on alternative energy sources and generally preserving the environment. Green economies tend to focus on technological innovations that increase energy efficiencies. The goal of green economies is to provide consumption and production while reducing or eliminating any adverse impacts on the earth and its resources.
- An economy is the large set of inter-related production and consumption activities that aid in determining how scarce resources are allocated.
- In an economy, the production and consumption of goods and services are used to fulfill the needs of those living and operating within it.
- Market-based economies tend to allow goods to flow freely through the market, according to supply and demand.
