Define an economy. Illustrate with an example that the economic life of every individual is interconnected

Answer 1

An economy is the set of social arrangements that answers the four fundamental questions. The first question asks what is produced. Every economy must decide what goods and services it will produce. The second question asks how goods and services are produced. Every economy must decide what production techniques will be used to produce the chosen goods and services. The third question asks who will produce. Each economy must decide not only what is going to be produced but also who will produce it, what good or service will each person produce, and how will that be determined. The fourth question asks for whom it is produced. Who will get to consume the goods and services once they are produced?
The interconnectedness of an economy can be explained with the simple example of ordering a pizza. When we call to order a pizza, telephone companies route the call. The pizza store receives that order. We pay for the pizza with a debit card that enables an electronic transaction in the bank. The pizza company uses ingredients like flour, which connects them to the farmers. The energy company provides electricity to the store. The delivery boy uses a bike, and the gasoline station sells gas for the vehicle. Each of these connections have connections of their own. We can say that a modern economy is very interconnected. The simple act of ordering a pizza is possible only because of all the other market transactions that have taken place leading up to the delivery of the pizza.