Economy – Economics Best Explanation

Economics is a social science that studies the laws of production, distribution, exchange, and consumption of goods and services that humanity needs or desires. The needs of man in almost all fields are superior to the means available to satisfy them, hence economic activity. Even though it is a social science, economics is determined by its own object of study by continuously employing mathematical analysis.

What Is the Economy?

This term encompasses the notion of how societies use scarce resources to produce goods with value and how they carry out the distribution of goods among individuals. This is based on the study of how a man can manage the resources available to meet his needs. It also studies the behavior and actions of people.

For centuries it has been considered a classical economy, which is used as a set of rules or norms to wisely manage a dwelling, that is, the family and, by extension, the community.

Latest Definitions of Economics

This science seeks to establish the principles and the corresponding rules of application, aimed at putting natural resources, the means of production, capital, labor, technique, and mechanics of human relations in the function of the life of society and thus avoid a future economic crisis.

The world economy is in very ancient use since it derives from the Greek terms Oikos (house) and nomos (rule), which means “government of the house” or “domestic administration“. An important aspect that should be mentioned is that in each country there is a faculty of economics in which the future economists of the world are trained.

In addition to that, each nation has a secretariat of the economy in which the administration of trade in the territory is regulated. There are also various images of economics in which they explain the whole term, make mention of the faculty of economics of each country, its collections to enter, and the concepts related to the term, among them, the market economy.


Principles of Economics

Within these principles, there is the objective, which is based on improving the living conditions and economic support that people and societies have. It is important to note that the available resources are limited (scarcity), but human needs are unlimited. When a person decides to assign a resource to a specific use, they are discarding its use for another purpose. This is known as opportunity cost.

It is also responsible for the study of all phases related to the process of production of goods and services, from the extraction of raw materials to their use by the final consumer, which determines the way in which limited resources are allocated, this could be called the circular economy. The main objects of study of economics over time have been:

  • Pricing of goods and productive factors (land, production, capital, and technology).
  • The behavior of financial markets.
  • The law of supply and demand.
  • The consequences of state intervention in society.

But in addition to this, various approaches to the study of economics have been developed. Initially, as part of the study of political and social history, only its economic aspects were considered. Over time, economic history acquired its own place, in which institutions such as the constitution of a country, the history of certain taxes, or a particular sector, which in general are part of the economic development of a nation, were studied.

The use of figures and explanations of countries’ development soon became an irreplaceable ingredient for writing economic history. Therefore, the work of creating national accounts since the early twentieth century in some countries was an essential factor for the discipline.

Sometime later, various theories on economic development were promoted, driven by understanding the various changes, stages, or predictable and identifiable periods. The most important currents that have existed in the world economy are mercantilism, physiocracy, classical school, Marxist school, Austrian school, neoclassical school, Keynesian school, and monetarist school.

Economy - Complete Explanation
Economy – Complete Explanation

Economic distribution

It is a set of actions that take place from the moment the manufacturer makes a product until the final consumer buys it. The purpose of distribution is to ensure the arrival of a product or customer. Distribution is one of the factors or variables of the marketing mix in the market. Distribution decisions are strategic for companies.

It is not so easy to vary a distribution channel, as they are usually regulated through contractual links when other companies participate or have required a very expensive investment when it comes to their own network. Any changes must be considered in the long term.

Economic growth

This is one of the goals of every society and involves a noticeable increase in the income and way of life of all individuals in a society. There are many ways or points of view from which the growth of a society is measured, one could take as axes of measurement investment, interest rates, the level of consumption, government policies, or policies to promote savings.

All of these variables are tools that are used to measure this growth. And this, in turn, requires a measure to establish how close or close we are to developing.

Types of economy

This science has a special division classified into seven aspects that will be explained below.

Macroeconomics and microeconomics

The first part deals with economic activity as a whole. It studies the behavior of large economic variables such as national production, national income, economic and monetary policy, public income and expenditure, inflation, unemployment, global production of the country, etc.

The second deals with elementary economic units such as the individual, the family, and the company. Study economic variables, such as investments, production, costs, income, expenses, savings, etc.

Orthodox and heterodox economics

When it comes to heterodox economic types, they are considered as a type of economist flow, promoter of economic science, and the use of instruments, methodologies, and the various sets of knowledge about classical economics.

These alternative schools of thought to the mainstream can be based on the tradition of classical schools of thought, new currents, or those relegated by orthodox thought. The latter is, basically, the economic model prevailing today, which is structured with the “rationality-individualism-equilibrium”.

Positive economy and regulations

The positive system is based on demonstrating, specifying, and answering all those economic unknowns from an objective point of view, that is, making use of reason. In this aspect, all the problems that affect the economic factor are described and their possible solutions are sought.

The normative is in charge of opening in a personal and subjective way on the possible scenarios of the economic systems. Here value judgments are made and questions arise such as what should be done in extreme situations.

Economy and diseconomies of scale

The first refers to the power that a company has when it reaches an optimal level of production to produce more at a lower cost, that is, as the production in a company grows, its costs per unit produced are reduced. The more you produce, the less it costs to produce each unit.

The diseconomy of scale refers to an effect that occurs in the production costs of a product, which will increase progressively generating more and more expenses for each product produced. It can then be said that the diseconomy of scales has an opposite effect to that of scales.

Informal, illegal, and submerged economy

The informal one is one that is carried out without having the permits required by the system. It comprises more than half of the global workforce and more than 90% of microenterprises worldwide.

The illegal, on the other hand, is one that does not respect the legal context, that is, illegal goods or services are traded, such as prostitution, counterfeiting of products, assassination, smuggling, trafficking in women, etc.

Finally, there is the underground economy which encompasses the previous types of the economy because it is all kinds of the economy that is not declared, so it does not enter into controls or taxes.

Free, Planned, and Mixed Economy

The free economy or free market is one where the merchant has all the power to decide what products or services he will offer and at what prices, this is decided mostly according to the supply and demand of the market, this type of economy is the most common in capitalist countries.

The planned economy is one where the state is the one that decides what goods and services can be offered and also places the costs on these services, this economy has been practiced in communist countries and dictatorships.

The mixed economy is a mixture of the previous two, the merchant decides the prices of his goods and services but the state can get involved or put certain limitations, it is also a common economy in socialist countries.

Solidarity economy

It is a theoretical and practical search for alternative ways of carrying out economic activities based on solidarity and work.

The principle or foundation of this science through solidarity is that the introduction of increasing and qualitatively higher levels of solidarity in economic activities, organizations, and institutions, both at the level of the company and in markets, economic policy, and public policy, increases micro and macroeconomic efficiency, along with the generation of a set of social and cultural benefits that favor the whole society.

Economy - Complete Explanation
Economy – Complete Explanation

Economics Basics

In this aspect, those concepts that are related to this important science will be mentioned and briefly explained.


It is the number of products or services that are available to sell or offer in the market under specific prices. Economists and entrepreneurs believe that with supply, consumers will end up benefiting from a greater amount of goods and services at lower prices.


They are the number of goods and services purchased by consumers at variable prices and at a specific time.


It is considered a cartel to the agreement by which several rival companies of the same branch, hold a meeting to reach a consensus as well as establish a cessation of competition, in this way, similar products can be brought to the market, as long as there is a cooperation between them because, in this way, overlap can be maintained with other companies.


It is the agility in which an economic system uses productive resources in order to meet its needs.


The market economy is a way of producing, consuming, and distributing wealth that is based on the principles of supply and demand through the market. There is full freedom for economic agents to buy and sell.


It is the exchange of both goods and services between the various parties or areas of exchange that maintain a similar or equal value, all in exchange for money.


The gross domestic product is a macroeconomic magnitude that is responsible for expressing the monetary value of the production of services and goods that have a final demand in each country during a certain period of time, this happens for a year or quarterly.


It is nothing more than the general and sustained increase in the prices of those goods and services that exist in the market during a specific period of time, that is, a year. When the price level increases, the acquisition of goods and services decreases.


It is the process by which economic goods and services are created. It is the main activity of any economic system that is organized precisely to produce, distribute and consume the goods and services necessary for the satisfaction of human needs.


This can be considered as a saving of capital that can be consumed with procrastination. Its definition refers to the use of resources in order to obtain profits or multiply capital.


This is nothing more than the set of activities employed to meet the needs of a given group of people.

Branches of the economy

There are different subjects or sciences that are related to economic activities and have special prominence, these are the following:

Economics of education

It deals with educational goods that are a form of services produced by society. Educational goods have their peculiar characteristics, these are utility and scarcity, both individual and social.

National and international economy

The first is the set of industries and labour in a given country. This covers industry, construction, agriculture, transport, the credit system, etc. Under capitalism, this science is based on private ownership of the means of production, it develops spontaneously, anarchically, directly subordinated to the pursuit of profit.

The national economy, under socialism, has the character of a planned economy; its purpose is to meet the ever-growing needs of society as a whole and of each of its members.

International is the exchange of goods as products and services between countries around the world. It can be said that the origin is in the exchange of wealth or products of tropical countries for products of temperate or cold zones.

As improvements in the transportation system were occurring and the effects of industrialism were greater, international trade was increasing due to the increase in capital and service flows in the areas most backward in their development.


It is the study of trade, production, and the relationship of both with the current law of a given country, thus interfering with both customs and government to be able to distribute wealth and national income.

Health Economics

It is an economic branch that makes use of national resources to meet health-related needs, in this way, each individual of a population can have access to medical institutions without a problem.

Financial economics

Financial markets form a space whose objective is to channel the savings of families and companies towards investment. In such a way people who save have a good remuneration for lending that money and companies can have that money to make investments.

The rural and urban economy

In the case of the first mention, reference is made to a scientific branch that analyzes the economic systems of a rural area, that is, it is related to agricultural activities and the study of each business mechanism to help define this sector in economic contexts.

Urban systems analyze the economic movement produced in the general population, projecting the analysis in the creation of urban strategies, their understanding, and approach through viable programs and projects for each situation.

Environmental Economics

In this aspect, analytical and mathematical instruments are applied to solve all those conflicts related to the use of natural resources.

Economy of Mexico

Mexico’s economic system is based on the export-oriented free market. This system is considered the first in Latin America, the second in Latin America, and the third in the PPP economy, that is, the one with the largest size in the entire continent after the United States. USA and Brazil.

During the last years, the macroeconomic stability of this nation has considerably reduced inflation and interest rates, as well as has managed to increase per capita income, however, according to the news of the economy in the nation, there have been very large gaps between people with higher purchasing power and the so-called poor. . This is quite noticeable in the southern and northern states, among rural and urban populations.

On the other hand, the current system has a lot to do with the economy of the Maya, since they focused on agricultural production, an approach that still remains since this is still one of the main means to maintain the economy in the nation.

As well as the use of natural resources, energy and the creation of industries to import and export products. The Secretariat of the Economy of the Mexican State has been in charge of administering all the economic resources of the nation to improve the branch.

Frequently Asked Questions about Economics

What is the object of the study of economics?

It is responsible for studying human behavior and the relationship or impact that economic systems have on society.

What is the main function of the economy?

It is based on the analysis of the distribution of both goods and economic services, taking into account their production and marketing.

What is political economy?

It is that science that analyzes the interaction of government with the production, distribution, and commercialization of economic goods and services.

What is inflation in economics?

It is about the increase in prices, this causes the value of money to decrease.

What phenomena does economics investigate?

It studies the behavior of the market, the pricing of goods and services, and supply and demand, among others.

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