What Is Meant By The Term Economy, And What Is Its Definition?

What Is Meant By The Term Economy, And What Is Its Definition?

We often encounter the term economy today, and many confuse it with the term economy. However, it is not the same thing. In the article, you will learn what the definition of this term is and what is the economy of the household and the world.

Definition of the term economy

By the term economy, we understand the set of all economic activities of the state or country, but also the sum of industries and various types of production of the national economy. Economics deals with three basic financial questions, namely:

  • What to make?
  • How to produce?
  • Who to produce for?

We understand the economy as that part of social life focused on the material maintenance and security of human life. It is the area of ​​society’s activity through which goods are distributed and consumed.

What are goods and needs?

The basis of human activity is a need, a conscious or unconscious lack, while conditions can be divided from several points of view. It is, for example, a developmental point of view, based on which we divide needs into primary (food, safety, protection from winter) and secondary (success, recognition, communication). Markets are also divided in terms of the number of subjects they satisfy, into individual and collective.

By the term farm, we understand everything that satisfies human needs. It can be food, machinery, but also land, and others. Estates are subject to a particular division, namely:

  • Free – These are goods that occur freely in nature
  • Economic – They are limited in a certain way

Free and economic goods can be further divided into tangible and intangible. In addition to free and economic interests, we divide goods into public and private goods.

  • Private Estate –  It is the estate of one person
  • Public Good –  A good that can be used by several people, such as public transport or sewage

With needs and goods, we can also meet the term consumption, which refers to the satisfaction of everyday essentials. We can also encounter the term production. Production is a prerequisite for satisfying human needs and involves the transformation of factors of production, such as capital and labor. These constitute the inputs and outputs of production, while the result of production is products of short-term or long-term consumption.

World economy

The term world economy is quite often inflected. It is an economy based on the economies of all the countries of the world and their national economies. The world economy forms a higher quantitative and qualitative whole than the sum of national economies. The world economy divides countries into developing, less developed, and developed countries.

Household economy

By household economy, we understand the management of each household. Some keep track of household expenses and income, and others don’t. The basis of the household economy is the family budget, a household financial management plan.

If you create a household budget, you will gain control over the household’s financial situation. Its advantage is that you reduce the risk of going into debt and avoid unnecessary spending. Also, thanks to an apparent family budget, you can find resources for saving and financial reserves that will come in handy in case of unexpected financial expenses.

Drawing up a family budget is the same as drawing up a business budget. When creating a budget, they summarize all income and expenses and compare them to make the greatest possible profit. Creating a household budget does not take much time and can significantly benefit your household.

What is the market?

In economics, the market is understood as a place where demand and supply meet, i.e., consumers and producers, and where various kinds of products and services of several types take place. Anybody or the office does not control the market, but people hold it by their behavior and needs.

We can understand the market spatially as a place where sellers and buyers meet and functionally as a combination of demand and supply in a specific area.

The market and its tasks:

  • Through competitive relationships, it leads to entrepreneurs and competitiveness
  • Adapts production to the needs of customers at home and abroad
  • It is irreplaceable because the price, which is the main parameter of value, can only be expressed in the market
  • It is a reflection of current and short-term interests

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