The term Economics is derived from Greek word oikos which means family, household, or estate and nomos stands norm or law.
Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people. Whereas Economy is the social activity where people come together to produce, stock, distribute, trade and facilitate consumption of goods and services.
The difference between economics and economy is that of theory and practice. Although both have a common goal – searching alternatives for the betterment of human life.
The first and the most famous work in studying economics ‘The Wealth of Nations’ was published by a Scottish philosopher and economist Adam Smith in 1776.
There are two aspects of the challenge that economies face:
1) Availability of goods and services required by the population.
2) Presence of the supply network.
Once depending on socio economics condition the availability of goods, services and investment (or funds) has been decided, a proper distribution network is assured for the produced Goods & Services.
There are three models for distribution network:
1) State -The state takes full responsibility of supplying goods and services required by population with no payments being made. i.e. Former Soviet union & Communist China.
2) Market – It functions on basis of price mechanism. Prices are determined by supply and demand. Generally capitalist economies i.e. whole of euro – America.
3) State – Market Mix – Mixture of first two systems. Certain goods and services might be made available for free or at the subsidized rates while for certain goods consumers have to pay depending on market.i.e India.