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What is Economy?

Synopsis

Economy is a system by which people living in an area earn their living. This system can be simple or complex depending on the mutual interdependence for this living.

Introduction

In economics, we study about the various types of economies and how they work. To know exactly what economy is, let’s take a glimpse of India’s past.

At the time of independence, India was an agrarian economy which means most of the population of our country was dependent on agriculture for their livelihood.

But with the passage of time or I can say with the advent of globalisation, privatisation and liberalisation (G.P.L), now most of our population has shifted from primary sector to tertiary sector for their livelihood.

It means that the people in an area changes their activities with the passage of time to increase their earning for better livelihood.

So, this system which helps the people to carry on various economic activities to earn their livelihood is known as Economy.

Different Sectors of economy

There are 3 sectors in any kind of economy –

  1. Primary Sector e.g. activities which are connected with products directly derived from the earth.
  2. Secondary Sector e.g. Industries (manufacturing from raw products to finished goods)
  3. Tertiary Sector covers all kind of services. It involves teachers, doctors, lawyers, etc.

These sectors cover all the activities which a person can carry to earn his livelihood. It may differ which sector is prominent in an area depending on the availability of resources in that particular area.

But one thing to be noted. Every economy is not the same. It means some are very simple and some are very much complicated.

Simple Economy v/s Complex Economy

What do you mean by “Simple”?

Simple means an economy where mutual interdependence is very limited and it can only be possible when every person producing goods and services only for their own consumption.

But it is not possible in today’s fast-changing world. Today everyone is dependent on each other for one thing or the other.

Let’s take an example

Our grandmothers used to do the household work on their own as they have a belief “A person should do their work on their own”. But today as the size of the houses is increasing and with the increase in working mothers, the requirement for the maids has increased tremendously. Even a single day leave by the maid creates tension in the minds of mothers. It is making it very clear how much we have become interdependent on each other.

So, we can conclude that today’s world economies are very complex where the degree of mutual interdependence is very high because we have high money needs which we are ready to exchange to fulfill our enormous wants.

Simple and Complex economy - Success Roar Classes
Simple and Complex economy – Success Roar Classes

Read More:

What is Economic Problem?

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