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The economy is the production and consumption activities that determine how scarce resources are allocated in an area.

It includes everything related to the production and consumption of goods and services. An economy exists to satisfy its participants’ needs.

In a market economy, like that of the United States, producers and consumers determine what’s produced and sold. Producers own what they make and decide their own prices, while consumers own what they buy and decide how much they’re willing to pay.

Other economy types include command and traditional economies.

In a command economy, a government dictates all economic activity. In traditional economies, each new generation follows the prior generations in how it works, what it eats, what clothes its members wear and so on.

Economics analyzes the production, distribution and consumption of goods and services. Its major branches are microeconomics and macroeconomics.

While microeconomics studies the behavior and interaction of individual consumers and firms, macroeconomics analyzes aggregates, such as gross domestic product, or GDP. The GDP represents the total dollar value of everything an economy produces. It’s usually a bad sign for a nation’s economy when its GDP decreases from one year to the next.

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