What Is A Simple Economy?

An economy is a place of association, exchange, production and distribution of products and services, by different producers. In economic terminology, it is commonly defined as ‘a social network that emphasize the practices, modes, and materials of production and consumption by various producers.’ The different producers can be grouped into classes according to their relations to one another such as rich, poor, medium, or developing. It is also sometimes grouped according to their ability to produce and sell goods, such as productive, non-productive, and developing.


In simple economy, money is usually used as the measure of value. Goods and services are not exchanged nor measured with any kind of units. Rather, the value of the product is determined by its usefulness and the needs of the community, where it will be produced. Simple economies operate on the principle of ‘useful to others, costly to none’ (Waldheim & Pickering). For instance, two households in the community may decide to exchange raw materials such as oil for other goods in the form of money, so that every individual in the community has access to sufficient funds to obtain food when they need it.

Economists suggest that, because of the existence of complex markets and other factors affecting the distribution of income and prices, the distribution of wealth in society is not normally distributed equally. Instead, there are differences in wealth between classes and even within classes. Simple economies, on the other hand, tend to distribute income more evenly between individuals through the operation of complementary market arrangements among businesses that purchase the raw materials or other resources of consumers and sellers of these goods and services who offer them as compensation for their services. The most important economic characteristic of a simple economy is the existence of a product market where producers and sellers meet to determine the price that each class of consumers will pay for the services they need to provide. The prices are set so that each class has enough money to provide its needs and, hence, have enough money to invest and save for future goals.