What is Economy

The general definition of an economy is ‘the system or range of economic activity in a country, region, or community’. This means the economy of a country is brief. It means them management of the land, labor, capital and enterprise of the country or nation as a whole. The word economy is derived from the Greek word oikonomos, which means to administer the household activities. Later it started to mean the administration of a public state. 

The word economy sounds like a simple word but consists of a whole range of things like the production, trading, distributing and the consuming of goods and services made in the country. Every person and every profession or work that the person performs has a contribution to the economy. The income, consumption, savings and investment of a person has a he impact on the economy. The savings and thereby the investments made by him will contribute to the growth of the economy.

The financial institutions have a huge role to play in the conversion of savings to investments. It is these financial institutions, which take deposits from the public and advance loans for productive purposes.  There are three sectors of the economy- the primary, secondary and the tertiary sectors.

  • Primary sector- this is a sector, which comprises of all the activities of agricultural origin and in the making of raw materials. The people who work in this sector are known as primary workers of the economy.
  • Secondary sector- this is a sector, which has all the activities meant for the conversion of raw materials into finished goods. For example, factories, which are set up to make machinery from the steel and iron, are secondary sector plants and the workers are also known as secondary workers.
  • Tertiary sector- this is a sector, which comprises of all the services in the economy.

Apart from this differentiation of the sectors of the economy, there is also the parting of economy into microeconomics and macroeconomics. This differentiation is very important for the study of the economics in an efficient way.

  • Micro economics- this is the economics which studies the individual firm or household. It takes the micro part of the economy into consideration while studying its behavior, spending and saving patters. For example, the production of a single firm, the consumption of a single household, etc.
  • Macro economics- this is the study of the economy as a whole. It takes all the firms in an industry into consideration. For example, the behavior of the entire industry during times of inflation is macro economics.