An economy is a place of collective exchange, production and distribution, not only of products and services, by other agents. In economic language, it is usually defined as ‘a local area of collective production, exchange, distribution, consumption and investment, where production is done in terms of price for output.’ It is also called a community or a nation because it is a political subdivision of a state or political community. Since the beginning of human civilization, economies have existed. They are still present today in our world as they were in the distant past.
Economies are often called the foundation of a nation and their strength. In modern times economies are made of enterprises and institutions that make productive economic decisions in terms of investment, production, distribution, sale and consumption of the products and services offered. For an economy to flourish and generate growth, the processes of accumulation, allocation, distribution, saving and spending need to be guided by an elaborate system of rules, laws and procedures called economic policies. This permits economies to pursue certain strategies for generating growth that are consistent with their long-term objectives and avoid missteps that might lead to short-term imbalances or even crises.
In contrast, market economies operate with less concern for long-term planning, are characterized by chaotic fluctuations that are the product of external factors (such as demand, supply, technology, attitudes toward risk, production capacity, etc.) and are characterized by diffuse controls over the allocation of resources. Market economies also allow for rapid innovation, often spontaneous but sometimes directed by governmental initiatives. These types of economies are characterized by competitive cuts in production, flexible exchange rates and high levels of investment.