An economy is an ensemble of the distribution, production and exchange of goods and services, by different agents, within a community. In economics, the term, economy, is used to refer to the processes, patterns and relations that regulate the interaction of people within a community or society. In broad terms, it is defines as ‘a social realm characterized by the practices, discourses, institutions and material manifestations associated with the production, management, utilization and control of resources.’ It is also defined as a ‘collective body of people and institutions which may vary from community to community.’
Economies have been described in various terms. For example, some economists define a contemporary economy as a system of markets and relationships in which prices are determined by the demand and supply functions of the market participants. On the other hand, the theory of economic systems suggests that there are numerous possible forms of economies. Within the narrowest sense of the term, economies are collections of goods, services and activities that are produced and exchanged according to a particular law or price signals. Economists also define economies as living standards of the level most appropriate for the members of the community.
Examples of modern economies include commodity and capital economies, natural resource and welfare economies and political economies. The classical liberal conception of the economy denies the existence of a unique economic system, maintaining instead that there are only two distinct kinds of economies: namely, the capitalist economy and a socialist economy. The distinguishing features of capitalist economy are that it involves a direct exchange of goods, services and resources between producers and consumers and that it is characterized by the creation of surplus value, i.e., surplus value generated through the investment of human and physical resources.