what the economy is

In its simplest description, an economy is the process of people exchanging things amongst themselves, so that each person can have things that they need and want, even if they are not able to obtain or make those things by themselves.

The things that people exchange amongst themselves are produced from the resources that the Earth and its environments provide. This exchange is called economic activity. In its simplest form, economic activity is the activities of individual people obtaining things from the environment around them, and directly exchanging them with things that other people have obtained from the environment around them.

The things that are exchanged may be goods: material things such as food, water, building materials, tools, or weapons; or they may be services: non- material things such as advice, labour, or entertainment. These exchanges of goods and services between people are the economic activity that comprises the economy. Collectively, goods and service are the products of the economy.

In the very simplest economies, these goods and services are exchanged in direct exchanges between two people, or in more complex multistage exchanges between several people. These direct exchanges of goods and services between people are called barter, and collectively they form a barter economy.

There are many limitations to a barter economy, such as the difficulty of exchanging goods and services over great distances with people that you don't know, the difficulty of exchanging goods and services that are only able to be produced at different times to each other, and the difficulty of exchanging single very valuable goods and services for large numbers of low value goods and services.

Modern economies overcome the limitations of a barter economy by using money as an intermediate medium to perform exchange. To exchange goods and services between each other, people first exchange the goods and services that they have to offer for money, and then exchange that money for the goods and services that they want.

Because money has a standardised value that everyone knows and trusts, money can be used to perform exchanges between people that don't know or necessarily trust each other, over any distance, or over any period of time. The use of money allows a more complex economy, so people have a much wider range of goods and services available to them because they work together cooperatively to process the resources of the Earth into a greater range of more complex things.

Even though each individual exchange always involves money (either as the exchange of goods or services for money, or money for goods or services) the fundamental process is the exchange, between people, of goods and services for other goods and services. Money is only a medium that enables those exchanges to occur; it has no intrinsic value. While the process of a modern economy is much more complex than that of a simple barter economy, the final the outcome is the same: the exchange of goods and services so that we can have things that we need and want to live our lives.

In the modern world, most individual people only offer services (their labour) for exchange: very few individual people produce goods. Goods are usually produced by businesses; people provide their services to businesses to enable the businesses to produce goods from raw resources obtained from the natural world.

This page is linked from:

resource use and economic activity

economic growth

economic activity

how resources are used in economic activities

goods and services

limits to the use of resources

using resources unsustainably

recycling finite resources

resource recycling and economic growth

substituting finite resources

renewable resource use as principal and interest