Economy – Resumenea

What is the economy

The economy is a social science that studies the processes of production, distribution and consumption of goods and services. Analyzes how limited resources are used to produce goods that meet the needs of society.

He aim is to understand how the economy affects the well-being of society and how economic growth and the distribution of wealth can be improved.

This discipline tries to explain the relationships between economics agents (individuals, companies and governments), paying attention to existing problems and their possible solutions.

Economics looks at the relationship between human needs and the available resources to satisfy them, since material resources are limited and it is not possible to produce an infinite quantity of goods.

The investigation of the main economic problems and decision making are based on four fundamental questions about production:

What to produce? When to produce? How much to produce? Who to produce for?

Economics deals with economic activity at all levels (local, national, international, etc.) and the economic growth of society, analyzing those factors that affect productivity, such as technology, innovation or investment.

Furthermore, it deals with the different economic systems, that is, the way in which each society organizes and regulates its economy. One of the most popular economic systems is capitalism, but there are other systems such as centralized or mixed.

The word economy comes from the Greek οἰκονομία (oikonomía), a union of the terms οἶκος (oíkos), which means ‘house’, νόμος (nómos), ‘norm’.

See also 7 key characteristics of globalization and Cycle.

Branches of Economics

Microeconomics

Microeconomics focuses on studying how economic decisions affect individuals and companies to markets, and how prices and quantities produced and consumed are determined.

Focuses on freedom of choice and behavior of economic agentsboth factors of great importance when it comes to finding a general economic balance.

It is a fundamental branch of economics that provides important tools and knowledge for business and government decision-making.

Macroeconomy

Macroeconomics is a branch of economics that focuses on the study of economic activity as a whole, at an aggregate level. It focuses on the global economic magnitudessuch as economic growth, inflation, unemployment or economic cycles.

Its objective is to determine the necessary conditions for the development and balance of the economic system. Analyze the relationships between different economic sectors and the way they affect the global economy.

Economic systems

Market economy

It is a type of economy based on the interactions between supply and demand of a free market. The consumer has a fundamental role in decision making. Freedom of prices and competence are key aspects, as well as freedom of business decision. All of this is supported by the private ownership of the means of production.

An example of an economic system based on this type of economy is capitalism.

Planned economy

The distribution of goods and services is managed by the State. It is a system of central planning in which the authority is the one who makes the decisions taking into account the needs of the citizens, controlling prices and remunerations. This system is based on the collective ownership of the means of production.

An example of this type of economy is socialism, a centralized economic system.

Mixed economy

The economic system that combine elements of the economy planned and the economy of free market.

It is a market economy based on private freedom and initiative, which allows certain interventions by the State to establish minimum guarantees for all citizens.

The private property of capitalism and the public property of socialism coexist, as needs arise.

Types of economy according to market activities

formal economy

The formal economy refers to economic activities that are carried out within legal limits and are recorded in official statistics, such as the Gross Domestic Product (GDP).

In this type of economy, companies are constituted in a way legal and comply with the government regulationssuch as paying taxes, complying with labor laws and safety regulations.

Informal or underground economy

The informal economy or underground economy includes economic activities, the exchange of goods and services, that are hidden to evade taxes or administrative controls.

It is practiced outside of legal controls and tax and includes activities not declared to the treasury. Some common examples of the informal economy are domestic work or street vending.

In all countries of the world, to a greater or lesser extent, the informal economy exists. Although it represents economic damage to the tax system, it sometimes represents a source of income for people who do not have access to regulated jobs.

Underground economy

The underground economy, also known as black marketis one that is constituted by a clandestine or clandestine exchange of goods, products or services. illegal. These are criminal economic activities, such as trafficking in weapons, prohibited substances, human beings or money laundering.

It is not subject to any legal regulations, so it often violates regulations imposed by the government.

Political economy

The concept of political economy emerged in the 17th century to refer to the relations of production between the three main social classes of the moment: bourgeois, landowners and proletarians.

Unlike physiocracy, where land is the origin of wealth, political economy proposed that work was the real source of value, from which the labor theory of value was derived.

The concept of political economy was put aside in the 19th century, replaced by that of economics, which privileged a mathematical approach.