An economy is a set of practices, discourses, and interactions, which, in turn, define the productive forces and economic activity of society. In simple terms, it is defined as ‘a social realm, in which the exchange of goods, services, investment, and communication occurs between individuals and groups that are based on the principles of private property and equal opportunity’. It includes a group of practices, which, though not having a legal status of its own, may be considered as affecting the economy of a country. These practices include: direct action, exchange, legislation, marketing, financial transactions, naturalization, outsourcing, capital formation, and many more.
Direct action is a technique used to promote economic growth by initiating change in the conditions of economic production. A classic example of this is the use of public works to promote tourism. The government can initiate a campaign for the building of bridges, a major toll road, so as to enable people to cross from one part of town to another. People who know anything about engineering will know that building bridges can be very expensive, soif you have any idea how to save money, you can easily build your own bridge. This is called specialization, and anyone who has any idea of economics will recognize that specialization is always a good thing.
Exchange is a procedure by which items are transferred from one body to another with the help of money. Now, let us study the theory behind the economy and how it actually works. The exchange value of a product is determined by the price that one body has to offer another in order to obtain the goods. Now, let us apply this to the real economy. Any economic activity that involves the transfer of goods, services, investment, and labor is referred to as industry.
A market economy refers to those economies that do not have a centralized political system or one that operates through a particular political authority. In a market economy, goods and services are produced and traded through the intervention of private individuals. As such, they are not centrally controlled by any authority. They reflect the character of individualistic capitalism. The existence of a market economy allows for a free market, in which prices can vary as the result of competition between buyers and sellers.
Under the market economy, prices for particular goods and services depend on the demand and supply of these products. Therefore, it follows that employment is not determined by wages. Instead, employment is the product of production and output of the various businesses. A market economy also allows for fluctuations in wages, because changes in the supply and demand of labor can affect the demand for wages. The existence of a market economy allows for economic growth, on the one hand, and the fluctuations in incomes, on the other.
The study of a country’s economy, as reflected in its macroeconomics, refers to the entire body of information regarding how the economy functions. A nation’s macroeconomics, then, encompasses all the aspects of how national income is made up and distributed. For example, the process of creating new goods and services and the methods used to deliver them to take up part in macroeconomics. A firm’s use of technological advancements, for instance, will affect the way it produces and markets its goods and services. And the way people invest, saving, and spending will also have a large impact on macroeconomics.
Microeconomics, on the other hand, refers to the details of how the microeconomics affects the macroeconomics. All the various economic activities of a nation take place within the firm or business itself. All the decisions regarding the price level of goods and services produced, where capital investments will be made, where the resources needed to produce goods and services will be stored, and the manner in which the firms will distribute profits and dividends will all be affected by microeconomics. The term microeconomics was first used in economics textbooks in the 1970s as a way to distinguish between the micro and macro aspects of economics. Today, the distinction between micro and macro is blurred, resulting in many economists treating all the economic processes within a country as microeconomics.
One type of microlevel of economy in which individuals and households have direct control over are the so-called commodity markets. In this type of economy, households are allowed to directly control the supply and demand for specific goods such as food, shelter, and clothing by engaging in a marketplace that allows them to transact business with one another. This is a very simplistic economy in which household producers and consumers to determine the supply and demand of goods in a direct fashion.