Economy Part 1

What is economy? I have heard it from my parents and never asked so I thought to buy a book on economy and I found what economy means. Economy on a national scale means the wealth and resources of a country in terms of production and consumption of goods and services is economy. On a person’s point of view the economy means taking your monthly income and stretching it to pay the monthly home rent, food, electricity bills and clothing.

Economy can be divided into three main sectors, agriculture with 4% contribution to the world economy, manufacturing with 32% and services with the most 64%. In general as the country gets richer and richer the agriculture sector decreases and the service sector increases. Some people live their lives by hunting and gathering food (such as nuts berries and fish) making shelters out of materials available locally. They don’t have agriculture but have their own economy (hunter and gatherer economy) as they make the best use of limited resources. They lived in small and mobile groups and might have traded occasionally with other groups. They had to make the same economical decisions as big industrialized societies.

There is also the free market economy that makes their own decisions about what to produce, usually made by individuals and businesses rather than a government. Although the free market doesn’t need to be dependent, there can be still problems as there might be only a few buyers or sellers. So if there is only one company that provides satellite services, they can charge immensely high prices and people will have to pay, as there is only one company. As for this result businesses run their own affair but the government controls all the affairs. Adam smith wrote one of the most influential books on economy in, 1776, called “An Inquiry into the Nature and Causes of Wealth of nations.” This book introduced a new idea called the “invisible hand” that matches up people’s advantage. What consumers choose to buy but nothing is planned in advance.

Prices are usually determined by market where buyers and sellers meet. From street market to shopping malls to Internet auction rooms. Prices emerge as individual deals strike. Sometimes buyers and sellers negotiate until they both agree on a price and then the deal strikes. Buyers usually have a maximum price in mind but they hope to pay the minimum price. Sellers usually have a minimum price in mind but they hope to get the maximum price. A key feature at marketplaces is that buyers can compare prices between different stalls and buy things from stalls where they have to pay a less amount.

The stock market is a place where people can buy and sell stocks from different companies either at the stock exchange via Internet. The prices of these stocks change quite fast. People want to buy shares of a company when they are low and want to sell them when the share prices are high. This would gain the most profit for their money. Once you buy a share in the company you are literally part of the company in the profit or loss of the company. It is essential that you monitor your shares every now and then.

Globalization is a way that people can communicate with each other around the world and can still trade. Modern methods of transportation have created a true global economy, in which people send vast amounts of goods across borders over seas. The World Trade organization regulates the flow of goods, services and technology between nations. Only because of globalization companies can locate their businesses in different parts of the world where labor is cheap.