The economy is the sum total of all transactions occurring between consumers, firms, and the government, across all different sectors and industries. It can be measured by gross domestic product (GDP) which is the market value of all final goods and services produced within a country in a certain time period.
The basic principles of economics revolve around the idea that people have unlimited wants, while resources to satisfy those wants are limited. The imbalance between the two is what makes economies work and it is the primary problem that economists study.
To solve the problem of scarcity, economies must find ways to turn less into more. This is known as economic growth. When individual laborers can produce more value with less, their wages increase and they become wealthier. The same applies to entire countries or communities. This is why the term “economy” has a positive connotation, and it is what distinguishes a developed country from one that is developing.
There are many different kinds of economies, and the type that a country has is determined by its geography, culture, laws, history, and other factors. Some countries are ruled by a central authority, while others allow markets to rule the day. The most common economy is called a market-based system because it relies on the law of supply and demand to determine what gets made and how much things cost. The other kind of economy is a command-based system, and it is ruled by norms set by those in power.