ECONOMY AND ITS PROCESSES

ECONOMY AND ITS PROCESSES

Meaning of Economy

All production units together made an economy. Economy can be associated with a city, town or a village. A city economy is included factories, shops, offices, colleges, banks and all other workplaces located in the city. A village economy includes farms, factories and so on. Thus an economy is a system through which people earn their living.

An economy provides the following things:

a.       Consumer goods

Those goods which directly satisfy human wants are called consumer goods. For example: food items, clothes, shoes, books, etc. Consumer goods are single use consumer goods and durable use consumer goods.

b.      Consumer service

We need services from barber, tailor, schools, colleges, doctors, banks, postal’s and transport. All these services are called consumer services as they directly satisfy the wants of consumers.

c.       Producer goods

Those goods which are used to produce more goods and services are known as producer goods. Machines, Tools, buildings, raw materials etc. are producer goods. Producer goods are single use producer goods and durable use producer goods.

d.      Producer service

Banking, transport, insurance, advertising are needed by production units. Such services are used in the production of goods and services.

Production

Production means inputs are converted into output. This output could be of goods and services. We convert cotton into cotton cloth, teacher service, driver service, doctor service are all production. There are some services which are provided by family members are not counted into the production units for e.g. cooking food, washing clothes, cleaning house, ironing