The economy is the social institution that organizes a society's production, distribution, and consumption of goods and services. As an institution, the economy operates, for better or worse, in a generally predictable manner.
Goods are commodities ranging from necessities such as food, clothing and shelter to luxury items like cars, swimming pools yachts etc. Services are activities that benefit others for example, the work of priests, physicians, teachers, and computer software specialists. The world economy or global economy is the economy of the world, considered as an international exchange of goods and services.
The economies of modern high-income nations are the result of centuries of social change. The primary sector is the part of the economy that draws raw materials from the natural environment. The primary sector-agriculture, raising animals, fishing, forestry, and mining-is largest in low-income nations. The secondary sector is the part of the economy that transforms raw materials into manufactured goods. This sector grows quickly as societies industrialize. It includes operations such as refining petroleum into gasoline and turning metals into tools and automobiles.
The globalization of industry means that just about all the world's countries have a significant share of their workers in the secondary sector. The tertiary sector is the part of the economy that involves services rather than goods. The tertiary sector grows with industrialization, accounting for 49 percent of economic output in low-income countries, 55 percent in middle-income countries, and 73 percent in high-income nations.
New information technology is drawing people around the world closer together and creating a global economy, economic activity that crosses national borders. First, we see a global division of labor: Different regions of the world specialize in one sector of economic activity. The agriculture represents about half the total economic output of the world's poorest countries. Most of the economic output of high-income countries, including the United States, is in the service sector. The world's poorest nations specialize in producing raw materials, and the richest nations specialize in the production of services.
Second, an increasing number of products pass through more than one nation.
Third, national governments no longer control the economic activity that takes place within their borders. In fact, governments cannot even regulate the value of their national currencies because dollars, euros, pounds sterling, and yen are traded around the clock in the financial markets of New York, London, and Tokyo. A fourth consequence of the global economy is that a small number of businesses, operating internationally, now control a vast share of the world's economic activity. Based on the latest available data, the 1,750 largest multinational companies with sales of about $30 trillion account for half of the economic output of the entire world (World Bank, 2010).
Fifth and finally, the globalization of the economy raises concerns about the rights and opportunities of workers. As a result the global expansion of capitalism threatens the well being of workers throughout the world.