What Is the Economy?
An economy is a field of exchange, production, circulation and distribution, not simply consumption and saving, of goods and services by other agents. In economics, however, the term economy is typically used to refer to the level of local production relative to the demand for goods and services, which in turn is determined by the size of the local economy. In economics, however, there is the unmentioned factor of market failure, in which demand for a specific good exceeds the supply of that good.
Economies, unlike markets, are characterized by what economists call “asymmetric” conditions, in which prices are both determined by external factors and also varies between states. The deviation from symmetrical conditions, called “monetary asymmetry,” can result in either a surplus or deficit in the overall economy. For instance, an economy may be said to be in an economic system that is in surplus when, all else being equal, the cost of production of some goods relative to the demand for such goods is less than their value.
But if demand far exceeds the capacity of supply, then the economy would be said to be in a deficit. This is the opposite of economy. In an economy, both surplus and deficit are considered to exist simultaneously, with surplus generally representing excess savings (the difference between investment and expenditure) and deficit reflecting the difference between actual investment and potential saving. The concept of economy is intimately connected to the concepts of business cycles, economic sociology, technology, production, consumption and financial systems. All these aspects of the economy affect each other in varying ways, producing, transmitting and diffusing opportunities, risks and rewards.