To understand what is economy, one must define it first. An economy is a part of the distribution, production and distribution of goods and services, and the interaction of many agents by the side of production. In simple words, it is defined as ‘a social community that emphasize the practices, social discourses, and productive material expressions related to the production, utilization and control of human resources.’ The society is the economic body; the economy refers to the processes and techniques of economic activity. Besides, the economy also includes the legislation that affects the economy.
For those people who are not familiar with what is economy, I suggest you read a good economics book first before you start to talk about this in detail. If you think that household management and economy is not connected then you are wrong. Households are the key players of the economy. Without them, there will be no economy as everything else would simply grind to a halt. After all, everything starts from how the individuals take care of their own families first.
The study of household management started from the Great Depression, when many entrepreneurs had been killed or displaced due to the war. Many people found themselves on the edge of starvation. This sparked a new phase in economics called the New Deal Economics. During these economic times, there were many efforts to promote economic growth. As a result, there were public works, subsidies, loans and grants for small business.
But unlike the New Deal economies, the modern economies are mixed economies. They are developed using different concepts. A mixed economy is a system that combines markets with some degree of state involvement. It can either be state-guided mixed economies or completely market-guided. So far, the best examples for the latter are those in the European Union (the European System) and Japan (the Japanese System).
A market economy is a system that promotes and ensures the distribution of goods, which are scarce in the economy. This economy uses markets to compete for scarce resources, making sure that goods are supplied at optimum prices. A market economy, in contrast, never encourages over-production or under-consumption. Instead, it encourages specialization and adaptation to changes in circumstances so that the good quality of the resources is made available at optimum rates.
A centrally planned economy refers to an economy in which the allocation of scarce resources is made by a central body. It makes sure that goods are produced in large quantities, in the right quantities and in the right ways. These goods are sold to households and firms on the basis of their demand and capacity to pay. This ensures that everyone has access to adequate goods at competitive prices.
A political economy classifies economic activity according to its importance and significance in a society. This classifies goods into two broad categories, necessary and unimportant. The necessary goods are those that contribute to overall satisfaction of people’s needs and motivations. They include energy, water, flora and fauna, education and training, housing, health care and technology, land and physical resources. The unimportant goods are those that do not contribute to satisfaction of people’s needs and motivations, such as leisure time, income, status and wealth, personal belongings, automobiles, consumer goods and ideas.
Black market economy refers to informal economic activity. Informal economic activity occurs in the black market or beyond the regulated system of prices and transactions. It takes place in the informal sector of the economy. Examples of black markets include drug trade, human smuggling, tax evasion, asset stripping, money laundering, bribery and robbery. Entrepreneurs operating in the black market to sell and buy illegally acquired goods, services and commodities, which they can’t sell or buy legally in the established economy. This segment of the economy continues to expand as more people become involved in it.