Factors That Affect The Economy

An economy is a place of collective production, distribution, commerce and consumption, by various agents. In simple terms, it is said ‘a political community or polity in which economic life is guided by economic goals and practices guided by the sharing of life resources.’ In other words, it can be called the center of the universe in most societies. Economies are based on cooperation, exchange and negotiation. It is considered to be the most important economic force in the modern world.

In economic terms, economies are the aggregate of micro-economic factors such as investment, demand, availability and productivity of labor and capital. It can be broadly explained as the operation of affairs that produce the measured economic growth. It is the source of national income, distribution of national wealth and determines the level of output and employment.

It can be studied in various economic sciences such as microeconomics, economics, business cycle, political science and psychology. The theories of economics are complex and multidisciplinary. They have a broad range of applications in macroeconomics, business cycles, international trade, economics and the politics of economic activity. The major categories are distributional economics, production economics, public finance, macroeconomic statistics, technical economics, money and banking, labor economics, investment economics and microeconomics. Micro-economic problems include price level inconsistencies, time preferences, entrepreneurship, investment, savings and spending habits, investment, production and business cycles. The concepts of economics include concept formation, theory formulation, measurement, economic reasoning, decision making, economic growth and market analysis.

Economic theories and concepts form the basis for the economic concepts, policies and institutions, which have direct influence on the economy. The direction and growth of the economy are governed by the economy’s structure. The size of the economy affects the level of economic activity and its structure. Economic growth and prosperity also depend on the gross domestic product or G DP.

The economic growth is the expansion or reproduction of purchasing power via monetary units. Purchasing power measures goods and services and the ability of individuals to buy them. Economists consider the business cycle as an important part of economic activity. Business cycle describes the movement of business assets and liabilities from their productive and potential state to their temporary and unproductive state, in a systematic and cyclical manner.

Microeconomics is smaller in scope than macroeconomics. It studies the behavior of discrete quantities of economic agents and their interactions within a micro-economic system. This type of economy is based on the analysis and measurement of the prices of specific personal goods and services on a small scale. It includes price level determination of specific domestic items and the calculation of aggregate demand.

General economics refers to a variety of approaches to economic activity. General economics considers the overall economic impact of all economic variables that are of interest to the economists. All economic variables include output, consumption, investment, government finance, foreign trade, exchange rates and financial systems. It attempts to analyze the effect of changes in domestic production, business activities and financial variables on the structure of the economy. It also takes into account aggregate economic signals including the tendency of prices to rise or fall.

Microeconomics and macroeconomics refer to broad areas of specialization within economic study. The former examines the economic actions of small economic units, while the latter concentrates on the broad scope of national scales. These two types of economics are closely related but distinct. A micro-economic system may include the operation of business enterprises within a community or a country, whereas a macroeconomic system is a nationwide economic phenomenon.

One of the most important concepts in economics is the theory of demand. It is an area of study that studies how people and their preferences affect the functioning of the economy. In a totally non-socialist economy, theories of demand are important to explain why a particular economic activity is undertaken and how people respond to it. An essential part of understanding how the economy functions is the study of trading.

A great deal of effort has gone into explaining why the industrial revolution happened in a country. The theory of economic growth is closely tied to the nature of economic growth. Industrial revolution meant increased production of goods, which in turn required an increased supply of goods. This created an increased demand for all goods including money, which in turn led to higher prices for goods leading to greater inflation and greater economic growth.

The industrial revolution did not just happen by itself though. The state helped in ensuring the progress of the industrial revolution by putting in place certain policies. A policy known as enclosure protects the smaller producers from competition by allowing large-scale producers to enter the market. This ensures that the industrial revolution occurs only at a later stage when there is already a high level of development in the economy. In market-based economies through the market, goods and services are bought and sold in the open market. But in economies through the market, there is the intervention of the state to ensure that there is a level playing field for all economically active parties.

Leave a Reply