Economy: Difference between revisions

 

An '''economy''' is an area of the production, distribution and trade, as well as consumption of goods and services by different agents. In general, it is defined 'as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of scarce resources'.<ref>{{Cite journal |last=Backhaus |first=Jürgen |date=2024 |title=What Is an Economy? |journal=Journal of Contextual Economics |volume=144 |issue=1 |pages=1–20 |doi=10.1007/s12324-024-00312-x}}</ref> A given economy is a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure, legal systems, and natural resources as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the economic domain is a social domain of interrelated human practices and transactions that depends on contributions and interaction between agents and enterprises, and it cannot stand alone.<ref>{{Cite book |last=Hanna |first=David |title=The Economy: A Very Short Introduction |publisher=Oxford University Press |year=2023 |isbn=978-0-19-883-469-7}}</ref>

Economic activity is spurred by production which uses natural resources, labor, and capital. It has changed over time due to technology (automation, accelerator of process, reduction of cost functions), innovation (new products, services, processes, new markets, expands markets, diversification of markets, niche markets, increases revenue functions) such as that which produces intellectual property and changes in industrial relations (for example, child labor being replaced in some parts of the world, or the gig economy).<ref>{{Cite book |last=Rothbard |first=Murray N. |title=Man, Economy, and State |publisher=Ludwig von Mises Institute |year=2009 |isbn=978-1-933550-27-9}}</ref>

The English words ''economy'' and ''economics'' derive from the [[Ancient Greek|Greek]] ''οἰκονόμος'' (''oikonomos''), "one who manages a household", a composite word from ''οἶκος'' (''oikos''), "house", and ''νόμος'' (''nomos''), "rule or law".<ref>{{Cite web |title=Economy - Etymology, Origin &amp; Meaning |url=https://www.etymonline.com/word/economy |access-date=2024-03-15}}</ref> The earlier sense of the word in English was "household management," which remains a secondary meaning. The broader sense of "economic systems, the wealth and resources of a country or region, especially in terms of production and consumption" emerged in the 19th century.<ref>{{OED|economy}}</ref>

The earliest human economies were based on subsistence agriculture and barter. The [[Neolithic Revolution]] saw the development of surplus production, which enabled specialization and the rise of cities. In [[Ancient Greece]], the study of ''oikonomia'' was concerned with household management and was not yet a separate discipline. Thinkers such as [[Aristotle]] wrote on the art of wealth-getting and the nature of exchange.<ref>{{Cite book |last=Buchanan |first=James M. |title=Economics: Between Predictive Science and Moral Philosophy |publisher=Texas A&amp;M University Press |year=1987 |isbn=978-0-89096-340-2}}</ref>

During the [[Middle Ages]], economic activity was organized around manorialism and the guild system. Long-distance trade expanded with the [[Silk Road]], and mercantilism became the dominant economic doctrine in Europe from the 16th to the 18th centuries. The discovery of the Americas brought vast amounts of silver and gold into Europe, fueling the [[Price Revolution]].<ref>{{Cite book |last=Pomeranz |first=Kenneth |title=The Great Divergence: China, Europe, and the Making of the Modern World Economy |publisher=Princeton University Press |year=2000 |isbn=978-0-691-09010-8}}</ref>

The [[Industrial Revolution]] beginning in late 18th-century Britain transformed production through mechanization, factory systems, and the growth of wage labor. This period saw the emergence of classical economics as a formal discipline, pioneered by [[Adam Smith]] in ''[[The Wealth of Nations]]'' (1776). Smith argued that in a market economy, self-interested behavior guided by the "invisible hand" of the price system leads to socially beneficial outcomes.<ref>{{Cite book |last=Smith |first=Adam |title=An Inquiry into the Nature and Causes of the Wealth of Nations |publisher=W. Strahan and T. Cadell |year=1776}}</ref>

The 20th century was marked by the rise of [[macroeconomics]] as a distinct field following the [[Great Depression]], with [[John Maynard Keynes]] arguing for government intervention to stabilize aggregate demand. After World War II, the [[Bretton Woods system]] established the [[International Monetary Fund]] (IMF) and the [[World Bank]]. The late 20th century saw the rise of neoliberalism, globalization, and the transition of former planned economies toward market systems. The 21st century has been shaped by the rise of the digital economy, platform capitalism, and growing attention to sustainability and climate economics.<ref>{{Cite book |last=Piketty |first=Thomas |title=Capital in the Twenty-First Century |publisher=Harvard University Press |year=2014 |isbn=978-0-674-43000-6}}</ref>

An [[economic system]] is a system of production, resource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community. Types of economic systems include:

* '''[[Mixed economy]]''' – an economic system that blends elements of market capitalism with state intervention and social welfare provision; most modern national economies are mixed.<ref>{{Cite book |last=Heilbroner |first=Robert L. |title=The Worldly Philosophers |publisher=Simon &amp; Schuster |year=1999 |edition=7th |isbn=978-0-684-86214-9}}</ref>

* '''[[Newly industrialized country|Newly industrialized economies]]''' – a subset of developing countries that have experienced rapid economic growth and industrialization.<ref>{{Cite book |last=World Bank |title=World Development Report |publisher=Oxford University Press |year=2023}}</ref>

[[Microeconomics]] examines the economic behavior of individual agents—households, firms, and buyers and sellers—in individual markets. It studies how prices are determined by supply and demand, how consumers maximize utility under a budget constraint, how firms maximize profits, and how market structures (perfect competition, monopoly, oligopoly) affect welfare. It also analyzes market failures, such as externalities and public goods, which may justify government intervention.<ref>{{Cite book |last=Mankiw |first=N. Gregory |title=Principles of Economics |publisher=Cengage Learning |year=2021 |edition=9th |isbn=978-0-357-13399-4}}</ref>

[[Macroeconomics]] studies the economy as a whole, focusing on aggregate variables such as [[gross domestic product]] (GDP), the overall price level, unemployment, inflation, savings, investment, international trade, and economic growth. It addresses the causes of business cycles and the effects of fiscal and monetary policy. Modern macroeconomics draws on microeconomic foundations to model aggregate behavior.<ref>{{Cite book |last=Blanchard |first=Olivier |title=Macroeconomics |publisher=Pearson |year=2021 |edition=8th |isbn=978-0-13-489987-8}}</ref>

* [[Money supply]] – the total amount of money in an economy, monitored by central banks to guide monetary policy.<ref>{{Cite book |last=Samuelson |first=Paul A. |title=Economics |publisher=McGraw-Hill |year=2010 |edition=19th |isbn=978-0-07-351125-8}}</ref>

Factor markets include the [[labor market]] (where workers and employers interact), the [[capital market]] (where savings are channeled into investment), and the [[land]] or natural resource market. Product markets exchange finished goods and services. Government agencies, such as [[central bank]]s, also act as economic agents by conducting [[monetary policy]] and regulating financial markets.<ref>{{Cite book |last=Stiglitz |first=Joseph E. |title=Economics |publisher=W. W. Norton |year=2015 |edition=4th |isbn=978-0-393-93462-3}}</ref>

Growth is driven by increases in the quantity and productivity of factors of production—labor, capital, and total factor productivity—often associated with technological progress, human capital accumulation, and institutional quality. The study of long-run growth is central to [[development economics]], which seeks to explain why some countries have grown rich while others remain poor.<ref>{{Cite book |last{Acemoglu |first=Daron |last2=Robinson |first2=James A. |title=Why Nations Fail: The Origins of Power, Prosperity, and Poverty |publisher=Crown Business |year=2012 |isbn=978-0-307-71921-8}}</ref>