What is an economy? A lot of people have come up with different definitions when asked what is economy. However, many people have agreed to define economy as something that can be clearly seen in any particular country’s history, geography or society. Economists have proposed and supported this definition for the international community since the advent of modernity.
To put it simply, the economy is a human activity that involves the exchange of goods, services, resources and prices between producers and consumers. An economy is also defined as a political realm, a field of the public economy, the regulation and control of economic activity, and the use and allocation of goods, services, capital and natural resources by other agents. In a very broad sense, then, economics economy refers to the way things are managed by the process of interaction among individuals within a country or community. Within the broad range of this definition, there are several sub-types that highlight different aspects or perspectives on how the process of economic activity happens. These include: political economy, which study the role of politics and public policies; institutional economics, which studies the interaction of market institutions and the decisions that they make; economic theory, which studies the ways in which individuals and firms make use of their environment and the factors that influence their decisions; and individual and family economic circumstances, which study the interaction of households and the role of money in the process of their economic activities.
The political economy is characterized by macroeconomic policy that attempts to promote and balance the distribution of wealth as well as its distribution according to the strength or weakness of the state. For instance, in a democratic state, the state tries to ensure the protection and support of its citizens against the effects of economic policies and externalities that may affect them. As such, all levels of the society participate in the economy through taxation and regulation. Political economy also involves analyzing the interdependence of the different economic sectors, looking into the possibility of environmental pollution, and understanding the allocation of natural resources and capital. The American economy, for instance, has both a mixed economy – a mix of political and economic influences – along with anarchy, the only system in which private property and markets are unhampered.
Institutional economics focuses on the decisions made by market participants within the organization. Market participants are companies, organizations, institutions, banks, governments and other entities that interact with the economy. The main areas of inquiry include the structure of the firm, the nature of firms, the distribution of income and wealth, asymmetric information, economic distortion, globalization and the political economy. Unlike the previous types of economy, institutions have a longer history in the country. They also have greater access to money and more potential for growth than the previous ones.
The last classification is mixed economy. It can be described as an eclectic mix of all three elements mentioned earlier. For instance, in an America dominated by firms, the country would have a mixed economy, since a firm is not truly part of the economy if it does not produce or utilize goods and services that can be sold and purchased in the market. On the other hand, many firms may still be important economic modifiers.
The study of macro-economics delves deeply into the activities of business and government. Some examples include: long-term trends, such as what is happening in China today compared to 20 years ago, national level economy, international trade and currency relationships, interest rates, inflation and other economic considerations. On the other hand, micro-economics studies what is happening at the level of individual households and families. Examples include: how the family members are spending their money, what they’re spending it on, what are the basic structure of household income and consumption, the structure of families when looking at child rearing and so on.
The study of both macro and micro-economics is known as microeconomics. Micro-economics compares what is happening at the level of individuals and families to what is happening at the level of the larger economic system. This can be compared with classical economics which looks at what is going on in the larger economic system. Classical economics considers such modifiers as supply and demand, the political environment and the role of information, money and so on.
The above two types of economics are often inter-related and used together to form a comprehensive understanding of how the economy as a whole is evolving. As you can see, both classical economics and micro-economics take a limited view of how the economy as a whole functions. In recent years, with the rise of computers and the internet, there has also been an upsurge in what is termed digital economics. Digital economics incorporates the use of computers and the internet to examine the various economic variables around the world. What is economy is constantly changing; therefore, keeping up with it is important in order for modern society to continue to move forward as smoothly as possible.