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What is an Economy?

Mr. C.S. Sudheer | Posted On Tuesday, June 24,2008, 07:05 AM

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What is an Economy?



What is an Economy?

An economy can be defined as the representation of the total rupee value of all goods and services produced over a specific time period, which is often referred to as the size of the economy. The gross domestic product (GDP) is one of the main indicators that are used to measure the country's economic growth.

An economy encompasses all activities related to production, consumption and trade of goods and services in an area. An economy applies to everyone from individuals to entities such as corporations and governments. The economy of a particular region or country is governed by its culture, laws, history, and geography, among other factors, and it evolves due to necessity. For this reason, no two economies are the same.

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Types of economy:

An Economy can be broadly classified into three categories. Listed below are the types of economies and their features:

Market-based economy: This is a kind of economy that allows goods to flow freely across the market depending on the supply and demand. It is an economic system in which production and prices are determined by unrestricted competition between privately owned businesses.

Command-based economy: A command-based economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced and the price at which the goods are offered for sale. It also determines investments and income. The command economy is a key feature of any communist society.

Green economies: this is a type of economy that depends on renewable and sustainable forms of energy. The aim of these economies is to cut down the carbon emissions, restoring biodiversity, relying on alternative energy sources and generally preserving the environment.

What is a Market Economy?

A market economy is a kind of economic set-up where the greater part of production, distribution, and exchange is controlled by individuals and privately owned corporations. In this type of economy, the government does not participate in the above mentioned activities and thus the government’s interference in the market is minimal. In a market economy, the price and production is controlled by buyers and sellers freely conducting business. Given below are the characteristics of market economy:

  • Private property: This private ownership combined with the freedom to negotiate legally binding contracts permits people, within very broad limits, to obtain and use resources as they choose.
  • Freedom of enterprise and choice: Private entrepreneurs are free to obtain and organize resources in the production of goods and services and to sell them in markets of their choice. 
  • Motive of self-interest: the driving force of the market economy is that each individual is trying to promote his/her self interest.
  • Competition: Economic rivalry means buyers and sellers are free to enter or leave any market and there are buyers and sellers acting independently in the marketplace.
  • System of market and prices: The preferences of sellers and buyers are registered on the supply and demand sides of various markets, and the outcome of these choices is a system of product and resource prices.
  • Limited government activity: As a self-regulating and self-adjusting economy, no significant economic role for the government is necessary.

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Current Position of Indian Economy:

The following points highlight certain important aspects of the Indian economy and its current position:

  • India’s GDP is estimated to have increased 6.6% in 2017-18 and is expected to grow 7.3% in 2018-19. In April-July quarter of 2018-19, the GDP grew by 8.2%.
  • India has retained its position as the third largest start up base in the world with over 4,750 technology start ups, with about 1,400 new start-ups being founded in 2016, according to a report by NASSCOM.
  • India's labour force is expected to touch 160-170 million by 2020, based on rate of population growth, increased labour force participation, and higher education enrolment, among other factors, according to a study by ASSOCHAM and Thought Arbitrage Research Institute.
  • India's foreign exchange reserves were US$ 400.49 Billion in the week up to September 14th, 2018, according to data from the RBI.
  • Exports from India increased 20.7% year-on-year to US$ 221.83 billion in April-August 2018.
  • Companies in India have raised around Rs 21,000 Crores. 
  • India's Foreign Direct Investment (FDI) equity inflows reached US$ 389.60 Billion between April 2000 and June 2018, Around 10.8 million jobs were created in India in 2017.
  • India has improved its ranking in the World Bank's Ease Of Doing Business Report by 30 spots over its 2017 ranking and is ranked 100 among 190 countries in 2018 edition of the report.
  • India's ranking in the World has improved to 126 in terms of its per capita GDP, based on purchasing power parity (PPP) as it increased to US$ 7,170 in 2017, as per data from the International Monetary Fund (IMF).
  • India is also focusing on renewable sources to generate energy. It is planning to achieve 40% of its energy from non-fossil sources by 2030, which is currently 30% and also have plans to increase its renewable energy capacity from to 175 GW by 2022. 

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What is an Economic System?

An Economy is the system of production, distribution and consumption. Economy can be a developed one with the efficient use of available resources. We can use our resources efficiently with the better knowledge of economy and finances.

Many of us have a misconception that economy means only Business, Stock markets, Banks and those who are involved in commercial activities. But economy includes business, sentiments, emotions and many other hidden things which you all have experienced in different ways and in different situations. One economy can be totally imbalanced from the emotions and sentiments of the people. My dear Readers an efficient and a developed economy include the following :

  • Most advanced and technologically developed agriculture system
  • Ethical and socially responsible business and business practices
  • Required patriotism with a better Vision in the people
  • Awareness of economics and finances in the people
  • Well managed and principled political system
  • Well ruled and followed law and order
  • Speculation free capital markets
  • Technologically advanced fast Banking system
  • Economic education to all irrespective of the courses and degrees
  • Education to develop entrepreneurial skills and abilities in youths
  • More number of export oriented business houses and supporting internal production houses
  • Branding self developed technologies as ‘our own’ instead of selling it to ‘foreign companies’
  • Talent transfer or selling kind of activities has to be stopped
  • There should be mutual respect and cooperation in the society
  • Giving birth to more number of Multi National Companies

If we follow above said points, we can successfully build an "economy of effort".

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