Final answer:
An economy is the system by which goods and services are produced, distributed, and consumed in a society. It involves the production, exchange, and consumption of goods and services. The basic questions of what is produced, how it is produced, and for whom it is produced are answered through the interaction of demand and supply in markets.
Step-by-step explanation:
An economy is the system by which goods and services are produced, distributed, and consumed in a society. It involves the production, exchange, and consumption of goods and services. There are different types of economic systems, such as market economies, planned economies, and mixed economies.
One way to understand an economy is by studying its basic questions, which are what is produced, how it is produced, and for whom it is produced. These questions are answered through the interaction of demand and supply in markets. Demand represents the wants and needs of consumers, while supply represents the quantity of goods and services available.
For example, in a market economy, consumers express their demand by purchasing products, and producers respond to this demand by supplying goods and services. The price of a product is determined by the interaction of demand and supply. This allows the economy to allocate resources efficiently and satisfy the needs of people.