What Is an Economy? | Cash Course | PragerU Kids

before we start this episode here's a quick preview of what's coming ready to take charge of your finances and master The Art of Money Management cash course is your ultimate guide to financial literacy from personal budgeting to macroeconomics check out more episodes at prageru.com lemonade sir lemonade ice cold only a dollar hey nice stand you have there if you grow your business you could really help out your local economy economy but I'm just trying to sell lemonade well when you produce and sell a product your participating in something called an economy which is an interconnected web between producers you and consumers your customers an economy can be local National and even Global for example the United States has had the largest economy in the world for at least the last 60 years its wealth and resources are used to create and accomplish things all around the world so my stand isn't just about lemonade nope it's much more than that so how does an economy work well an economy is the activity between consumers and producers when you buy lemons sugar and ice for your lemonade you are participating in the economy as a consumer on the other hand when you make and sell your lemonade you're participating in the economy as a producer and who do you sell it to Consumers this cycle of economic activity is happening everywhere around you including at your favorite restaurant at your local bar barber shop and all over the internet as buying and selling increases economies grow and expand creating financially good times but sometimes due to various reasons like political instability extraordinary events and inflation activity will slow down and the economy will contract or get smaller this typically leads to people losing their jobs and having less money to spend bummer this leads to less economic activity where consumers spend less and businesses cut how much they produce this pattern of expansion and contraction of the economy is called the business cycle so what happens if the economy contracts too much well when it contracts for at least 6 months straight the economy is said to be in a recession I know it may sounds scary but the US has had 13 recessions since the end of World War II with most of them lasting less than a year you may have even lived through a couple of them economies can be as big as a nation or as small as a community no two economies are alike either since they are shaped by a Region's geography resources culture laws history and the choices and actions of the people living within it one type of economy is a market-based economy or free market economy in this type of economy producers and consumers not the government decide what is sold and produced based on supply and demand producers sell what consumers want and set prices based on what consumers are willing to pay like my lemonade stand yes let's say that your lemonade is so good and in such high demand you can barely keep up to meet the demand you have to hire more employees buy more materials and increase the supply of lemonade this is great for your local economy and for you as drinks continue to fly off the stand you start upping your prices eventually you notice sales are slowing down and customers are drinking a cheaper alternative so in order to stay competitive you drop your prices and try to bring back that demand that sounds exciting another type of economy is called a command-based economy in this kind of economy the government owns and controls production distribution and prices here private ownership and competition is controlled or doesn't happen at all in other words in this type of economy your lemonade Empire would cease to exist less exciting in reality no economy is purely market-based or command-based today the majority of the world's nations are mixed economies they usually lean more towards market-based or command-based economies but have sprinkles of other types mixed in for example the United States is mostly a market-based economy but the government can have sizable influence on the economy by changing interest rates or with subsidies for various products artificially creating demand that otherwise might not exist Vietnam is another example of a mixed economy up until the late 1980 80 s Vietnam was a pure command-based economy but then it began to encourage private Enterprise now that you know more about an economy let's take a look at how you can participate and help your community and Country Thrive one be productive economies Thrive when citizens are educated and working the decisions and efforts of an economy citizens are what makes it great or not two be an entrepreneur business owners create jobs which in turn creates growth which in turn can help the local economy there are opportunities all around you three observe when you're walking around consider what kind of economic activity is happening consider the stores the products the workers and the customers this may influence both where you shop and where to set up shop someday we're all entangled in the complex web of the economy as producers and consumers we depend on one another for goods and services so be sure to do your part contribute and make your community a better place thank you enjoy thank you for your business watch more at prageru.com don't forget to subscribe