An economy is a place of the exchange, production and distribution of goods, services and products by different agents, within a community or society. In economic theory, it is defined as ‘a complex system that maximize the productivity of human effort and promote the wellbeing of society as a whole’. The definition of economy can be considered as the totality of practices related to the production and distribution of goods, services and products within a community or society.
In today’s world, economies are undergoing changes in all aspects as the world’s population is growing rapidly, creating demands for more goods, services and products. In addition to this, changes in technology have increased the pace of production and changed the way people spend their money. These factors have created numerous economic differences among communities and countries. The size of the economy refers to the amount of goods, services and products that an average community or country can produce in a given time. Economists and political scientists define an economy as an economic system that efficiently uses the scarce resources available to produce goods, services and products in an economical way.
In an economy, there is a balanced flow of ‘natural’ resources from the land, households, governments and businesses to satisfy the demand of consumers and generate revenue. This process takes place on a long term basis. An economy is said to be running efficiently when there is a sufficient supply of income, employment and investment to meet the domestic demand and produce growth in the product market. An economy has a smooth functioning when all aspects of the market are functioning smoothly and effectively to support the domestic economy. A healthy economy ensures that the distribution of natural resources is fair.