An economy is any place of the actual production, consumption and exchange, of goods and services, by various agents. In simple terms, it is said to be a social community or economy that focus on the practices, discourses, material exchanges and the practices associated with production, use and management of natural resources. Economists, however, tend to use “the” economy when they discuss economic activities of a country, state or community. In fact, many textbooks do this and sometimes it could be argued that economic activity should be discussed under the broader umbrella of economic theory. Within the broad spectrum of economic theory there are two key theories which I believe to be the cornerstones of economics: market economy and centrally planned economy.
Market economy is based on the maxim that entrepreneurs should compete to supply a product or service which clients want at the lowest price possible. The resulting surplus then is used to reinvest in further growth of production or infrastructure, innovation, and research and development. The key idea of market economy is that there are sufficient numbers of buyers and sellers to ensure that costs are fair and equal for both buyers and sellers. The result is that, although there is a sharing of overall wealth, prices are driven primarily by demand and supply forces rather than by the circumstances of supply and demand.
Centralized planning economy is a bit of a misnomer as it is not really directed towards a specific sector or type of economy. Centralized planning economies allocate resources to specific economic activities rather than allowing markets to function. This results in economies that are characterized by excessive inefficiency, excessive dependence on external sources of energy and raw materials, excessive dependence on short-term loans from banking institutions and other lending institutions, high levels of taxation, excessive corruption, excessive controls over the distribution of real estate, massive levels of regulation of markets, pollution, social conflicts over land and resources, inefficient distribution of basic infrastructure, high levels of education, and lack of jobs. Mixed economy is the opposite of centralized planning economies and is characterized by excessive dependence on global sources of energy, finance, natural resources, and human capital.