In simple words, Economy is the management of scarce type of resources. 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.
Economics studies how individual, firms, government and other organizations withn our society make choices. Economic studies the economic activities of mankind.
The first recorded sense of the word “economy” is in the phrase “the management of œconomic affairs”, found in a work possibly composed in a monastery in 1440.
“Economy” is later recorded in more general senses, including “thrift” and “administration”.
The most frequently used current sense, denoting “the economic system of a country or an area which involves money and investment“.
Branches of Economics
Small level – Individual player, household, small level business.
Economy as a whole
Types of Economy
Capitalist economy has its origin in the works of Adam Smith in which there is a proposal of Invisible hands of market forces (price mechanism) will bring equilibrium in the economy. In this system state has no economic role.
eg :- USA, Western Europe has this model of economy.
Major set back during the great depression 1929 questioned many ideas. This brought the concept of state role in some form to control the economy. This type of economy is still controlled by market forces but for the larger public interest and for macroeconomic stability, has government control and interference.
Eg :- India
Rooted in the Idea of Karl Marx, this type of economy is fully controlled by the state, and decisions related to production supply and price taken only by the state. These economies are also known as centralized economy, central planned economy or non-market economy.
Eg :- Former USSR
Role of Sate in Economy
- As a regulator who decide economic policies and ensure their implementation.
- Producer and supplier of private goods and services.
- Producer and supplier of public goods.
Eg :- These goods may be free of cost or at a subsidized price. The cost is paid by the public exchequer.
Agrarian Economy, Industrial Economy and Service Economy
If the contribution of agriculture in a country’s GDP is more than 50%, it is termed as Agrarian Economy. And, if the Industries of a country has more than 50% contribution in the GDP, the country termed as Industrial economy. Similarly Service economy.
China is an Industrial Economy. India is a service Economy
You can read more about what is economy on wikipedia