What is Economy Definition | What is the Economy meaning?
The Sum of all transactions taking place in the area which can or cannot be regulated by the government is called Economy is the easy Economy definition or answer to What economy means. The management of all financial activities in a specified area and the proper allocation of the resources among the different people.
Example of what economy means & Economy Definition.
In the Country, where the Goods and services are created by the Producers (factories/ Companies, etc.) and are Consumed by the Consumers (Individual/ Family, etc.) and the transaction is regulated by the Countries Government is called as Economy of that Country.
The economy is Economic in Real action. It is the still frame picture of economic activities done by Countries, Individual or a Family all have their economies but popularly used in cases of Countries Eg. Indian Economy, US Economy, Russian Economy and etc. While the principles and theories remain the same. (Theoretical Economy Definition)
Economic System based on Nature
There are two main reasons behind the formation of different Economic systems.
Human being life completely depends upon the consumption of certain things which may be essential (Food, Clothing, Water, Shelter and etc. ) or non-essential (Mobile, Internet, Table, Chairs and etc. ) to Produce and Distribute this thing there must be some producing entities. For production one must set productive assets for which money needs to be spent (Investment ) but who will produce and why? In this process of taking challenge evolved different types of Economic systems.
As discussed above the role of regulation is of the Government of that country and different countries applied different strategies of regulation few Countries followed the Minimum regulation policy (Minimum Government interference) whereas some Followed the Command regulation policy (Complete Government Interference) and few followed the Balance Approach.
Types Of Economic System
1. Market Economy / Capitalist Economy / Free Market Economy
This is considered to be the First Economic System that emerged from the Tradition Economic system. Its origin is traced back to the work of Adam Smith (Scottish Philosopher) – An inquiry into the Nature and Causes of the wealth in the Nation (1776).
- The Economic activities done to get the goods and services supplied are motivated by self- Interest there is no social intent behind the production of goods and services. Adam Smith calls this motivation factor “Invisible Hand” this answers the question of who and why will someone invest.
- For High Prosperity, there must be an increase in the division of Labour (Large jobs are divided into Small). Specialization brings speed, precision, and quality to the work.
- Minimum Government Interference – The government follows the policy of Lassiez Faire (French word) which means Leave it Alone. The Lesser the Government interferes better the economic performance. Government plays no or Least economic role
- Competition Prevails in market economies as the Best Survives and it is Profit oriented System.
- Main Feature – Max Production -> Max Distribution -> Max Profit -> Max Growth
- The Main Focus is on Maximum Profit
- Countries which are market economy are USA, Japan, Uk, etc.
This gave Rise to Two Major Economic System
- Capitalist – Focused on Creation of Wealth, Some Government Regulation but can have Private Monopoly
- Free Market – Focused on Exchange of wealth, Little or no Government regulation completely depends on Market Forces.
Cons of this System
- Exclusive Development – Development of a specific section of the society.
- No tools to look after the poor people
- Negligible to a total absence of welfare of the people in this state
- Widening Economic Inequalities.
- Unequal Distribution of Wealth.
2. Non-Market Economy / Communist Economy / Socialist Economy
This economy idea was evolved in reaction to the Market Economy. Rooted in the Idea of Karl Marx (1818 – 83) having the ownership control in the hand of the state.
- Low to the minimum idea of the market as all resources are owned by the Government.
- Social Ownership of means of production and supply. As the owner is of the State / Society / Community
- No property right is given to the individuals guided by the belief that it helps small minorities.
- Planning Principle is followed– State creates the plan for growth and development of the Society/ Community and etc.
- The main motive is achieving maximum Social welfare along with equal distribution of wealth.
- Inclusive Development – Development of all sections of the society.
- Price Decided by the Government and no role of the Market
- The main focus is on Inclusive Development
This gave Rise to Two Major Economic System
Cons of this System
- The aim is of serving all as there are no ideas of creating Capital or Wealth which created a scarcity of investible capital.
- There is an absence of motivation to work hard as there is no property right of an individual – Leading to the virtual absence of innovation.
- Usually, this is a Non-Democratic Political system so things like Liberty and Freedom were Totally Absent.
- Main Feature – Avg. Production -> Avg. Distribution -> Avg. Profit -> Avg. Growth
3. Mixed Economy
A mixed economy came into existence when there were certain policy changes made in the market economy (by late 1930). The first county to adopt this system was France (1944-45) Later many newly independent nations Like India, Pakistan and etc. adopted this system.
- A proper mixture of Market and Non-market economy means there exist the public and private sector co-exists and have economic roles.
- The private sector plays its role where the invisible hand can work properly (Profit motive). Production and supply of private goods and services But the state is also not prohibited from playing this role.
- Those roles that are not played by the private sector due to the absence of profit are to play by the Government for the betterment of the Society and Community.
- Market forces are free to operate in their domain within the watch of Government Authorities. Regulation (Rules of Business, Taxation, Competition and etc.) is taken care by the state.
- Some feature of Capitalist and Socialist economy goes Hand in Hand in this type of Economy
- Main Feature – Max Production -> Max Distribution -> Max Profit -> Max Growth -> Inclusive Development
- The main focus is on Fastest Growth, Maximum Profit with Inclusive Development.
Simple and Best Definition of Economy?
The Sum of all transactions taking place in the area which can or cannot be regulated by the government is called as Economy.
Which Economy System is Best?
The answer to this question varies from economy to economy depending on culture and tradition of society But as per World Trade Organization Mixed, Economy is better than the rest but also said every economic system has flaws.
What is the division of the Economy system?
By the Nature of Economies
– Market Economy
– Mixed Economy
– Non-Market Economy
– Developing Economy
– Developed Economy