The term economy refers to the entire body of ideas, values and practices related to the production and distribution of goods, services and products in a society. In economic theory, the term economy is used to refer to the interaction of individuals, firms and institutions that produce, consume and exchange goods and services on a market basis. The scope of the economy is thus wider than merely economic activities. Economy refers to not only individualistic enterprise but also to the interactions among persons and groups for the purpose of producing, consuming and exchanging goods and services. In economic theory, the term economy also refers to the interaction of various economic agents for the purpose of promoting the overall objectives of the economy.
Basically, an economy consists of three components: a market, producers and consumers, and a resource market. A market refers to the physical location where goods and services are sold or traded. A market is characterized by demand and supply conditions that ensure that goods and services offered are economically feasible for both buyers and sellers. The producers, on the other hand, are the entities or people who invest in the development of the market, creating new goods and services as well as providing the means by which goods and services are supplied. Consumers, on the other hand, are the individuals who physically interact with the producers, obtain the goods and services they need, and ultimately dispose of them as a result of their consumption. The sphere of economy covers a broad range of activities involving money, credit, government, non-monetary resources, technology, culture, communications and production.
One important concept of economics is that the value of any product or service rests on the elasticity of demand. Elasticity refers to the ability of a firm to sell its products or services at a definite price at any time, while potential gDP refers to the overall economic capacity of a country. The concept of potential gDP and elasticity can be used together to predict the level of economic growth and the rate of inflation.