Introduction to Economics

The purpose of every economy is to satisfy human wants by using limited or scarce resources available and known to a society. These wants can be satisfied by production and consumption of goods and services. For production, the factors of production are engaged in some economic activities. These economic activities bring income to the economic agents that can either be consumed or saved and invested. On account of these gainful economic activities and accumulated earnings, some countries grow fast while others cannot attain such high growth rate. As a result some economies attain the status of developed economies while others remain underdeveloped or developing economies. They are also known as rich and poor economies. We can look at economies on the basis of ownership of resources. The resources available may be in private ownership or the collective ownership. Thus there are different ways to look at the economy and its level of development. In this lesson we will explain all these terms in simple way so that you may understand and differentiate the meaning and nature of an economy and understand its various types.

Meaning of an Economy

• An economy is a man-made organization for the satisfaction of human wants. According to A.J. Brown, “An economy is a system by which people get living”. The way man attempts to get a living differs in major respects from time to time and from place to place. In primitive times ‘get a living’ was simple but with growth of civilization it has become much more complex. Here it is important to note that the way person earns his/her living must be legal and fair. Unfair and illegal means such as robbery, smuggling may earn income for oneself but should not be taken into consideration as gainful economic activity or a system of ‘get a living’. It will therefore be appropriate to call that economy is a framework where all economic activities are carried out.

Some of the salient features of an economy are as follows:

1. Economic institutions are man-made. Thus, an economy is what we make it.
2. Economic institutions can be created, destroyed, replaced or changed. For example, the capitalism was replaced by communism in 1917 in USSR and the communism was destroyed in 1989 through a series of economic reforms by former USSR. In India after independence in 1947 through economic and social reforms we abolished Zamindari system and introduced many land reform.
3. Levels of economic activities keep on changing.
4. Producers and consumers are the same persons. Thus, they have a dual role. As producers they work and produce certain goods and services and consume the same as consumers.
5. Production, consumption and investment are the vital processes of an economy.
6. In modern complex economies we use money as a medium, of exchange.
7. Now-a-days the government intervention in the economy is considered undesirable and the preference for free functioning of prices and market forces is increasing in all types of economic system.