General Introduction to Economy

 

Introduction to Economy 

Economy is the backbone of every nation. Economy is a social domain which gives an idea about the production, utilisation and management of resources. It helps in maintaining balance between the supply and demand i.e. production and consumption in market.

Economy thus refers to an institutional system that meets the material needs of society by exchange, thrifty and efficient use of material resources. On the other hand, economy keeps a constant check on how the scarce resources are allocated among the society.

Economy remains an incomplete word unless the name of a country or a particular region is added before it, such as the Chinese economy, Indian economy, etc.

Utility / Importance of Economy

🔹Economy leads to the regular flow and circulation of money due to the consumption of goods and services.

🔹In a nutshell, Economy studies and  determines each and every parameters that a particular nation, individuals  or government  had to follow for  the  allocation of resources.

🔹It can assist in improving  and raising  the  living standards of society. Thus we need economy for a good life, a good house, and almost all the comforts.

🔹Besides this, the database is generated by the deep study of economic parameters or indicators by economists such as gross domestic product (GDP), consumer price index (CPI), stock market performance, unemployment status, per capita income, etc. The database helps the government in the framework of new policies and incentives for  the nation.

Types of World Economy

Though several terms are deployed to describe the types and nature of existing world economies, however the majority of economists comply that there exists four major economy types.

1. Traditional Economy

It is an economic system wherein the economy of a particular region or nation runs  according to the earlier customs and traditions of that very place. Simply, an  agriculture remains  a major export from such economies. Traditional economies basically lacks advancement in medicine and technology sector.

 

2. Command Economy

In this type of economic system, the government solely determines the goods that will be produces and  how the resources will be distributed. Infact, an economic system that is completely run by the government is known as command Economy.

 

3. Market Economy

Market economy may be defined as an economic system which is run by an individual organisations rather than government. The government has little or no significant powers in this sort of economy in relation to production, distribution and puchase of goods and services.

 Market-based economies lets the free flow of goods through the market.

4. Mixed Economy

An economic system in which two different types of economy are merged to form a new form of economy is  referred to as mixed economy. It is particularly a combination of command Economy  and market economy.

Mixed economy is considered best amongst the major types of economic systems.

 

Below table will provide you the better understanding of the major types of economy :

S. No.	ECONOMY	FEATURES	EXAMPLES
1.	Traditional Economy	✦An economy is based upon the customs and traditions such as based on agriculture and hunting.   ✦Ancient economy type in the world.   ✦Traditional economies never or rarely achieve a kind of profit gained by market or command economy even in a hunderds of years.	Rwanda, Inuit tribes of Canada, Berbes tribesmen of Algeria, etc.
2.	Command Economy	✦An economic system in which factors of production are controlled, monitored and owned by the government.   ✦Government determines how resources will be utilized.   ✦Consumers have limited choices in the market place.	Laos, Cuba, Belarus,  North Korea, etc.
3.	Market Economy	✦An economy in which organisations run by an individuals own and operate the factors of production.   ✦Individuals determines how the resources are utilized, which demands are necessary and how the production of goods is done.   ✦Government does not regulate resources, valuable goods or any essential part of economy.	Hong Kong, Singapore, Japan, US, UK, Canada, etc.
4.	Mixed Economy	✦An economy which has features of a market and command economy thus sometimes called Dual Economy.   ✦Government and the individuals share the decision making process.   ✦Government only monitors and guides production of goods while individuals owns the means of production.	India, Russia, China, US, UK, Canada, etc.

Economy Indicators

Economic indicators are tools that are used to determine and analyse the detailed account of country’s economic performance in several aspects. Economists provide their feedback to the government on a regular basis based on their study of major economic indicators. Such reports by economists are published by several agencies and helps in guiding investment decisions according to the economic conditions.

Major or top economic indicators that direly have a deep  impact on economy are :

• Gross Domestic Product (GDP)

• Stock Market

• Unemployment

• Consumer Price Index (CPI)

• Producer Price Index (PPI)

• Industrial Production

• Inflation

 

As GDP is the best way to measure economic growth,  we are going to discuss in brief about this prime economic indicator.

Gross Domestic Product (GDP)

The Gross Domestic Product (GDP) is a major indicator of the country’s economic performance  and highlights the total market value of all finished goods and services generated within a specific time period. Usually  the investors don’t focus on annual GDP but rather on quarterly GDP for correct estimation of present conditions.

GDP depicts the overall health status of an economy. The four prime components of GDP are :

1. Consumption

2. Investment

3. Government Expenditure

4. Net Exports

 

Note: Bhutan is the only country in the world which do not consider GDP as an economic measure instead considers Gross National Happiness Index as an alternative to GDP.

We hope the article will definitely help you in getting the basic and general idea related to the economy, its nature and types existing in the world. The list is designed in a tabular form and will ultimately fulfill your quest of knowledge by imparting vital information regarding Economy. 

For any queries, apprehensions or suggestions associated with this article, feel free to comment below so that we can address such shortcomings.