MEANING OF AN ECONOMY

MEANING OF AN ECONOMY

We Know that man is a bundle of wants. In order to satisfy their wants wants, people earn their livehood and produce various goods and services. Production of goods and services requires the help of different factors of production and coordination among various producers. For examples , for the production of wheat we require land (farm), labour (farmer), and capital (agricultural tools and implements). Similarly, if you take the example of the production of cloth in a large scale factory you will find that for the production of cloth you require the cooperation of many factors such as land for the factory, labourers, machines, managers, entrepreneurs etc


We also know that no one in the econmy can himself produces all goods and srtvices of his requirment. Whosoever thinks to be more able and efficient in the production of any particular commodity, he devotes himself to be the production of that commodity.This is called division of labour or specialisation. for exampl, a farmer producers grains, a weaver weaves cloth, a carpenter makes wooden things and an ironsmith makes the tools of iron. Hence everybody has to exchange his goods and services with the products of others. this gives rise to the system of mutual exchange. in this way the activities related to earning livelihood, production and exchange become very essential in the satisfaction of human wants. in order to perform all these activities we requires some sort of system, organisation or structure, which we call an economy.
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Thus, an economy is a system in which and by which people get a living to satisfy their wants through the processes of production, exchange and distribution.

For the smooth working of an economy the processes of production, consumption,exchange, distribution and investment are essential.That is why they are called essentials or vital processes of an economy.