What Is The Economy?

An economy is a physical place of production, distribution and exchange, and the interaction of different agents producing and exchanging goods and services. In economic theory, it is defined as a social field of the exchange, production and consumption of various goods and services, with minimal interaction. It is also called the productive frontier, since it refers to the frontier line separating countries with different economic policies. In modern economic theory, the term economy is used to refer to the entire field of economic activity as well as the processes that drive it.


The scope of an economy is vast, since it can be classified according to its degree of complexity and number of products. A simple economy is characterized by generalized reciprocity between producers and consumers, where exchange and production have no limits. A complex economy has a more intricate network of interacting economic agents, producing, distributing and trading goods and services on a long-term basis. Complex economies are characterized by a bargaining system for the allocation of scarce resources, creating value through production and distributing goods and services over a wide geographical area.

A very important concept of economy is the concept of money. Money, unlike goods and services, can be produced, processed, bought and sold at the will of the market, without any need for a physical bank. Money is the primary medium of exchange in a complex economy, with all other factors acting as stimulants on the process. The process of money production is called production; the process of money distribution, called circulation, is called a transaction.