An economic system is a set of social, political, technological and economic institutions in which transactions take place that affect the rate of exchange of a commodity or service. A simple example is a city whose economic activity includes the sale of products and services to neighboring entities. An economic system is also a system that determine the prices of commodities and services, and establishes the values of money, financial instruments and real estate and other forms of real property. All economies have some elements in common, such as:
The Economy of a Market. The prices of commodities and services are determined by the supply and demand of those items. An economy with a limited amount of demand for a commodity or service would have very low prices. An economy with an abundance of demand will have much higher prices.
The Economy of Different Markets. An economy has several different markets. It may be a local market, such as the price of a product sold in a specific market; a regional market, such as the price of gasoline or oil produced locally; or an international market, such as the price of food or clothing produced in a country other than one’s own. The prices of a variety of goods, services and resources can be affected by the existence of multiple markets.
The Economy of Economic Policy. The policies a government adopts can determine the overall growth or decline of an economy. This includes the rate of taxation, regulation of trade, and investment decisions. The level of production of each of these factors can be altered to create a favorable effect on economic activity, if these factors are appropriately managed.
The Economy of Production. A production economy refers to a company that produces a certain quantity of a good. A production economy can be divided into two categories. There are a primary production economy, which is a production-oriented economy, and a secondary production economy, which are an industry-oriented economy.
The Economy of Distribution. The distribution of a product from its source to its destination is another function of an economy. Some goods are traded, such as those manufactured by a firm. Other goods are distributed through the channels of commerce, such as those that arrive in a postal box. In both cases the distribution of the goods, and their price, are affected by the prices set by the demand for them.
The Economy of Price. Price can be measured by either the price of a good or the cost of producing the good in the first place. Price determination is often determined by the process of production, which involves determining how a good is created and where the good is used. A consumer is charged more for the use of a good than what it costs to produce.
The Economy of Economic Activity. The economic activity in an economy includes all the factors that determine the prices and supply of a commodity or service, and the price it receives at a given time. A society’s consumption, production and distribution of a product influence each other, and the effect of these factors on the overall price of a commodity or service.
The Economy of Market. The structure of an economy is based on the functioning of a market. The functioning of a market determines the prices of a commodity or service and determines the distribution of a commodity or service.
The Economy of Monetary Policy. An economy has a specific monetary structure. The currency used in an economy may be gold, a commodity, or a government bond. The government issues currency to circulate among citizens, and businesses. The value of money determines the level of the market.
The Economy of Investment. The economy consists of all the things that make the market function. A market is the most common way to create wealth. Money created by a market serves as a medium to exchange commodities, providing the basis for trade. All of these processes are affected by the economic structure and behavior of an economy.