What is an Economy?

Every so often you tend to hear statements like “the economy is really strong”, “the economic situation is really NOT good”, “this economy”, “that economy” and so and so.

Have you ever stopped to really think:

What is this thing that is called “the economy”?

Now you may have a general idea, but I’m not talking about that. What is it really?

What is the Economy?

The standard definition of an economy goes like this:

An economy is an area of the production, distribution, trade, and consumption of goods and services.

Examples being the Canadian Economy, the US Economy, the Chinese Economy. These are National Economies. And all of these economies together form the Global Economy. Any trade, production, distribution or consumption that takes place in this world happens within the Global Economy. Thus, conceptually speaking, the largest economy is the Global Economy. And there are various ways to slice the Global Economy to get a sub-economy, which tend to be also referred to as some form of an economy. E.g. European Economy, economy of Texas etc.

The definition above is the standard definition. It is looking at the concept of economy from a constituency P.O.V. There is an alternative way to look the concept as well – a system-oriented way.

1.1.1 A System-oriented Definition

An economy is a system that is supposed to enable better and ongoing improvement in the efficient usage of its resources. The economic system ideally should result in improvement in the living standards of its constituent population.

This again puts the Global Economy at the top of the hierarchy, but it allows us to sub-divide the Global Economy in other ways – non-geographical ways. Some examples of that being, the Market Economy, the Planned Economy, the Sharing Economy etc.