What is an economy? For most of us, it is something that we all know or have heard of: a state of complete economic equality where everyone has the same opportunities to produce, consume and transmit. This, however, is a rather crude and simplified description of the economy. The true economy is much more complex than that!
A truly efficient economy is one in which there is no (or very low) concept of scarcity. An economy is a place of the highest production, highest circulation and greater consumption of goods and service by other agents. In this sense, economics refers to the practices, discourses, processes, and material manifestations related to the production, utilization, allocation and distribution of scarce resources. By contrast, economists often speak of the economy as a condition of maximum supply.
The study of economics deals mainly with concepts such as money, credit, production and employment. There are many other important concepts that economists study, such as the theory of demand, theory of investment, the theory of substitution, theory of government finance, national income forecasting, international trade, macroeconomics, microeconomics, theory of production, economic growth, output elasticity, business cycles, international monetary systems, risk aversion, flexibility, asset markets, risk premixtures, international trade flows and balance of payments. While these concepts pertain to the analysis of the nation-wide economy, it should be noted that the analysis of microeconomics, the analysis of the local economy, remains a comparatively neglected sub-field of economics. It is still growing in importance, but as a whole, is not yet comparable to the great modern theories like macroeconomics.
The study of economics seeks to provide with guidelines for understanding, however, economic indicators are usually measured against time-periods rather than an abstract standard of value. One example would be to measure the performance of the economy over a one-year period against another over the same time period. Thus, a measure of today’s economy against a measure taken 100 years ago. One cannot compare apples to apples when comparing the two, so it becomes necessary to use other means to determine what the benchmark is for gauging performance.
One common framework used to measure economies is a market economy where goods are produced and sold on the open market. The scope of this form of economy is broader than the classical microeconomics or the national level view of economies. Market economies are characterized by a market for goods and services, with prices set by consumers and producers, and a set level of activity. Unlike microeconomics, which focuses on the interactions of individuals within a market system, market economies also include non-market goods or services that are purchased and sold outside of a formal transaction between producers and consumers. In a market economy, the production and distribution of goods and services take place in a marketplace where buyers and sellers are self-employed, organized directly through free-market enterprise, or are otherwise unencumbered by government regulation.
Non-market economies, on the other hand, tend to fall into one or more of the following two categories: precious metals and currency. In a precious-metal economy, the value of money is based not on any abstract standard, but on the gold standard. The monetary standard in a precious metal economy is based on the existence and value of rare metallic currencies. As money gets rarer, so does the standard of currency. Money becomes a limited commodity that may be issued from a central bank, printed on paper, or stored in a depository. Unlike a precious-metal economy, money has no practical use except as a form of exchange.
The last type of economy is the classical or command economy. In a command economy, goods and services are produced and distributed in accordance with a pre-established legal standard, such as the law of supply and demand. Prices and wages are determined by a central authority rather than by competition between competing producers. Unlike the socialist economy, in which the products of labor and industry are controlled by a central political organization, in a classical economy, prices and wages are determined by the law of demand and supply. A classical economy is basically a laissez faire economy, with no restrictions on the amount of business or investment that can take place.
Economics is one of the most important subjects taught at every level of education, and it is no wonder that the study of economics is considered essential to a successful career. Whether one is planning to enter the business world, enter academia, or enter the political world, it is essential that one be familiar with the basic principles of economics. Knowing how different economic decisions are made by humans can help us to understand why we make choices and how other human actions and decisions are made. Learning about economics can enrich our life and help us make better choices and decisions in all areas of our lives.