If a Child asked you what makes an economy function, how would you answer him?

start with simple supply and demand.

Use toys or something he knows what he's talking about. Food is always a good example. (lemonade stand)

Also, if you use some commodity (example, dollar bills) make sure you can show that some is profit, and the costs get split into categories - like lemons, cups, water, sugar, labor etc

Keep it simple, try to get their wheels turning and see if you can ask them simple questions or have them ask you questions. HAVE FUN

An economy deals with how items and valuables (food, cars, houses, toys) get distributed to individuals.

Our system is a modified version of capitalism, so money is the deciding factor on who gets what and how much they get. People who have more money can buy the best quality stuff.

There are other economic systems which you could get into (socialism), that distributes goods based on need, and not on how much money a person has.

Im not sure how much detail you could go into, but you could also explain how socialism and communism break down. You could draw an analogy to communal toys at day care or school and how they usually are not taken care of as well as if it was the child's own toy. The child would have more motivation to take care of a toy that he had to work hard to get (doing chores for allowance) or was specially given to him as a gift than if there was no clear owner of the object.

edit: the problem of talking about supply and demand, is that it is less of a driving force in different economic systems (socialist) than it is in a capitalistic society.

to teach the child first hand about how an economy works, you could relate it to anything. You could point out a 'barter economy' that the child almost surely has participated at the school lunch table. "ill trade you this peanut butter sandwich for those cookies".

economy is a need of every human being.

in short and smart words u can tell the child that when ever ones want is being full filled or came into notice or for which efforts are being made, means economy is functioning.

or else demand and Supply is the best way for explaining the function of economy

if it were the 1960's I'd say "go ask your father".

Today it would depend on how old the child was. If under 10 I'd give a simple answer that a child could handle simply because at age 10 or under they should not be burdened with these kinds of worries, they should have a childhood. If an age older I'd send them to the internet to look it up. At that age they would need to know how to look things up on today's technology.

People need things. Most people can't make or grow everything they need, so, they pay other people to make or grow those things.

The people that MAKE things need things THEY can't grow or make, so even MORE people are paid to make and grow those things.

The people that GROW things also need other things.

So economy is a word used to describe how a culture makes and grow things for each other, and how all these people get paid to do this.

Spend when you must. Reduce ones needs and savings have power to built of future best. Minimise the requirements. Be simple in living standards.