How Does Economics Affect You?

An economy is a place of collective production, distribution and exchange, and consumption of goods and service by various producers. In economics, the term economy can refer to any of these three concepts: the formal economy, the informal economy and real economy. In general, then, it is described as ‘a social field of practice in which the practices, discourses, and materials expressed in everyday life are interrelated for a common purpose’. Economists distinguish four main categories of economic activity: production, consumption, investment and transfer.

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How Does Economics Affect You?

An economy is a place of collective production, distribution and exchange, and consumption of goods and service by various producers. In economics, the term economy can refer to any of these three concepts: the formal economy, the informal economy and real economy. In general, then, it is described as ‘a social field of practice in which the practices, discourses, and materials expressed in everyday life are interrelated for a common purpose’. Economists distinguish four main categories of economic activity: production, consumption, investment and transfer.

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Production refers to the processes by which items are produced and the processes by which they are bought and sold in markets. Consumption, on the other hand, refers to the activities of choosing what to produce and the ways in which such decisions are informed by the existence and satisfaction of needs. Investment, on the other hand, refers to the processes of creating and expanding the economy through technology, tools and institutions. Transfer, on the other hand, refers to the processes of receiving and exchanging the goods and services produced in the economy. Real economy refers to the total economy, including the market economy and government sectors. The study of economics brings into focus the relationship between production, consumption, investment, transfer, and the financing of economic activity.

Economics teaches how individuals and institutions meet their goals and purposes in a world of constraints. It is important to remember that an economy operates by communicating through time, space and price. Economics affects all aspects of daily life. Economics students learn about the nature of market prices, how markets operate, the role of money, why some economic policies work and why others do not, and the relationships among economic decisions, policies, institutions and credit.

The economic system determines the level of production of physical resources and the extent to which they can be utilized. When a country has more manufacturing than what it needs, there is an excess of goods or services available for sale. When a country has more available income than it uses, it runs a trade deficit. A nation’s balance sheet, which measures the difference between current assets and current liabilities, is considered a living economy by most modern economists.

The process of production involves a process of accumulation and distribution. Real economies depend on the process of gathering, manufacturing, transporting, processing, marketing and distributing goods and services. Governments extend credits to businesses so they can buy needed goods and services. Banks and other types of financial institutions lend money to businesses in order to expand their operations.

The distribution of wealth is another way of viewing the economy. Economic systems are said to be living when people have access to basic goods and services. When the distribution of wealth is fair, with everybody getting what they need, economies operate smoothly. But when an economy becomes socialist or riven by corruption, individuals start to suffer because they cannot afford to purchase the products they need.

Political economies occur when political leaders interfere with markets and attempt to create fictitious money. Political economies are not living economies. Real economies depend on private goods, finance and service providers that do not affect each other. They cannot be based on political whim; otherwise, they will go bankrupt.

Private goods, finance and service providers are based on competition, negotiation and innovation. No government can have the control necessary to intervene in this process. If the distribution of goods is unfair, that means an economy lacks sufficient demand for the goods or services that are being offered. In a political economy, an entrepreneur may introduce new products or services, but if they are not competitive, they will be forced to seek government intervention. Therefore, no matter how the economy may be described, it always boils down to supply and demand, and the absence of any one of them will quickly cause the economy to contract deeply.

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