Specialization and Exchange

Economy is an area in which people make and produce goods and services. It can be of any size. We can talk about local economy for example of small state, city etc ( economy of London, economy of Mumbai etc), National economy is a country’s economy for example UK economy, London economy is a part of UK’s economy. UK economy is a part of Europe economy, Japan is a part of Asian economy. This all makes up the Global Economy.

Private Sector: In private Sector, all firms organizations, companies are run, owned and controlled by private people/individuals or organization. They mainly aim for profit making. Example of private sector includes Royal Bank of Scotland, Standard Chartered Bank etc.

Public Sector: In public Sector all firms organizations, companies are owned run and controlled by the Government for example armed forces, public parks, hopitals, state schools.

Production is a process which satisfies human wants.

Goods are tanjible items which are produced to meet human needs and wants for example television, car, shoes etc.

Services are injangible items which also satisfies human needs and wants for example insurance, carpet cleaning service etc.

Producers are people who make and sell goods

Using up of goods is known as consumption

Consumer are people who spend on buying goods and services and their expenses are known as consumption expenditure.

For anything to be produced we need resources. Factors of productions are resources which input its effort to produce something which includes man made and natural resources.

They are

1. Land
2. Labour
3. Capital
4. Enterprise

Land

We ofcourse need land be get something produced. For example fertile soil for agriculture which is natural resource, piece of land for factory etc.

Labour are man power who input their efforts. They are people/workers who provide their mental and physical efforts. There many types of labour Unskilled labour, semi Skilled labour, high skilled labour. Example factory workers, managers, staff etc.

Capital is an investment to produce something which includes tools, machinery, hammer, metal etc.

Enterprise is a business run by entrepreneurs who are owners or risk taker/decision maker of the business. Profit is a reward for him.

There are many types of Goods

Consumer goods are produced for consumers which includes durable and non durable goods. Durable goods last for long time example television, computer, DVD player etc. Non-durable goods last for short period example food drink etc.

Capital Goods help to produce other goods and services which a firm may buy for production. The spending on capital goods in known as investment. Example machinery.

Public Goods are provided by the government even if no one pays for it. Example street light, law and order, environment protection.

Merit Goods are provided by the government so that people may benefit from it. Example state school, health care etc. In public sector government provides this.