Economy facts for kids
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An economy is how a country or group of people manages its money, resources, and trade. It's about how things are made, bought, and sold to meet everyone's needs and wants.
Two important parts of an economy are goods and services. Goods are physical items you can buy, like cars, food, or clothes. Services are actions that one person pays another to do for them. This includes things like medical care, teaching, or babysitting.
The study of economy, called economics, is split into two main parts: macroeconomics and microeconomics.
Microeconomics looks at the small parts of the economy. It studies why someone buys one product over another, how the supply and demand of products work, what price a company charges, and why different jobs pay different amounts of money.
Macroeconomics looks at the economy as a whole. It studies things like a country's total economic output (like its Gross National Product), how many people are unemployed, how much a country imports and exports, and the rate of inflation (when prices go up).
Contents
Types of Economies
There are different ways countries can organize their economies.
Traditional Economy
A traditional economy is usually based on bartering (trading goods directly), trading, and farming. This type of economy often follows old customs and traditions. People in traditional economies often do the same jobs as their parents or grandparents. There is little change in how things are done.
Market Economy
A market economy, sometimes called a "free market," is based on supply and demand. In this system, people are free to buy whatever products they want. Companies can make whatever products they want. There is very little government involvement. The idea is that competition among businesses helps the economy work itself out.
Command Economy
In a command economy, the government has strong control over the economy. The government decides what goods are made, what price they will be sold for, and who gets the profits. The government often owns many of the major industries in the country.
Mixed Economy
A mixed economy combines parts of both a market and a command economy. In this system, some industries are owned and controlled by the government. Other industries are left to the market, meaning supply and demand decide what happens. Mixed economies can vary a lot in how much control and regulation the government has.
A Journey Through Economic History
Early Economies: Trading and Farming
For a very long time, people have been making and trading things. As societies grew, so did their economies.
Ancient civilizations like Sumer and Babylon had early forms of economies. They used things like barley as money. They also created rules for trade and property.
Most ancient economies relied on subsistence farming. This means people grew just enough food for themselves and their families. People also traded goods through barter, exchanging one item for another.
Trade and Exploration in the Middle Ages
During the Middle Ages, economies were still quite simple. People mostly traded within their local communities.
Big explorers like Marco Polo and Christopher Columbus helped create the first global economy. They opened up new trade routes around the world.
Early companies were mainly trading businesses. The first stock exchange opened in Antwerp in 1513. This was a place where people could buy and sell parts of companies.
Countries like Spain and Great Britain started to control trade. They set up colonies and used rules called mercantilism. This helped them manage their wealth and resources.
Later, bankers began to help finance large projects. These included building roads and other important structures. This led to the idea of a "national economy," focusing on a country's overall economic health.
The Industrial Revolution and New Ideas
The Industrial Revolution began in the 1700s and 1800s. It brought huge changes to how things were made and transported. This period started in the United Kingdom and spread worldwide.
Factories and machines allowed for the mass production of goods. This meant many items could be made quickly and cheaply. It changed daily life for everyone.
During this time, new economic ideas emerged. Adam Smith, a Scottish thinker, explained how competition and supply and demand work. He suggested that people's self-interest could help the economy grow through free trade.
Modern Economies: Challenges and Growth
The idea of "the economy" became very important during the Great Depression in the 1930s. This was a time of great economic hardship in America.
After major global conflicts, leaders looked for ways to manage economies better. Thinkers like John Maynard Keynes suggested that governments could help solve economic problems. They could encourage growth by influencing markets.
The late 1950s saw strong economic growth in many countries. This led to a new kind of economy focused on mass consumption. People bought more goods and services than ever before. Many countries today use a system called a social market economy. This blends government involvement with free markets.
The 21st Century: Digital and Global Economies
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With the end of the Cold War, many countries moved towards market economies. The idea of a post-industrial society became important. This means that services, not just factories, drive the economy.
The Internet became widely used after 2000. This led to the rise of the information economy. E-commerce and online businesses grew rapidly. This created a new "all-connected" global society.
In modern economies, services, finance, and technology (the knowledge economy) play a much bigger role.
Economists often describe modern economies using a "three-sector model":
- Primary stage of the economy: This involves getting raw materials from nature. Examples include farming (like growing corn), mining coal, cutting wood, and getting iron. A coal miner or a fisherman works in this stage.
- Secondary stage of the economy: This is about turning raw materials into finished goods. For example, making steel into cars, or textiles into clothing. A builder or a dressmaker works in this stage.
- Tertiary stage of the economy: This involves providing services to people and businesses. Examples include baby-sitting, showing movies at a cinema, and banking. A shopkeeper or an accountant works in this stage.
- Quaternary stage of the economy: This stage involves research and development. It's about finding new ways to use natural resources or create new products. For example, a logging company might research how to use burnt wood for paper. Education is sometimes included in this sector.
Other important parts of a developed economy include:
- The Public Sector (or state sector): This includes government services like parliaments, courts, emergency services, public health, schools, libraries, and national parks.
- The Private Sector: This includes businesses that are privately owned and run for profit.
- The Social sector (or Voluntary sector): This includes charities and non-profit organizations that help the community.
Measuring an Economy
There are many ways to measure how well a nation's economy is doing. These include:
- Consumer spending: How much money people are spending.
- Exchange rate: How much one country's money is worth compared to another's.
- Gross domestic product (GDP): The total value of all goods and services made in a country in a year.
- GDP per capita: The GDP divided by the number of people, showing the average per person.
- GNP (Gross National Product): Similar to GDP, but includes income from citizens and businesses abroad.
- Stock Market: Where shares of companies are bought and sold.
- Interest rate: The cost of borrowing money.
- Government debt: How much money the government owes.
- Rate of Inflation: How quickly prices for goods and services are rising.
- Unemployment: The percentage of people who want to work but cannot find a job.
- Balance of Trade: The difference between a country's total exports and total imports.
Related pages
See also
In Spanish: Economía para niños
 | Percy Lavon Julian |
 | Katherine Johnson |
 | George Washington Carver |
 | Annie Easley |
