Economy
An economy is a collection of interconnected production and consumption activities that helps in distributing scarce resources. Goods and services are produced, consumed, and distributed to suit the requirements of those who live and work in an economy, also known as an economic system.
Economics
It is a social science that analyses how goods and services are produced and consumed in an economy. It is purportedly aimed at efficient allocation of scarce resources to satisfy maximum human wants. It is also the core issue in economics as resources are limited but human wants are unlimited. That is why it is also known as ‘the science of scarcity’.
Economy vs Economics
| Basis | Economy | Economics | |
|---|---|---|---|
| Definition | The physical system where goods and services are produced, distributed, and consumed within a defined boundary. | It is a discipline that studies how economies work, focusing on principles, theories, and models. | |
| Purpose | Focuses on the actual functioning of economic activities and transactions | Aims to understand and explain how economies work, often with policy implications | |
| Scope | All economic activities, such as manufacturing, agriculture, trade, services | Analyses individual and collective decision-making processes, market structures, government policies, and broader economic patterns | |
| Measurement | Indicators like GDP, employment rates, inflation, and Balance of Payment | Economic models, theories, and empirical data to study and predict economic behaviors and outcomes |
Branches of Economics
- Microeconomics – Decision making at individual/firm level
- Macroeconomics – Aggregate demand and supply in an economy
- Behavioral economics – Psychological aspect of decision making in an economic system
- Developmental economics – Economic development models in developing and less-developed economy
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