Question

Consider the various ways that firms, households, and governments participate in the economy.

(a) How are firms consumers?

(b) How are households producers?

(c) How are governments consumers OR producers?

Answer 1

(a) Firms are consumers as firms need to buy various goods and services for its operations and for the production of the final goods. For example, a consulting firm needs computers, software, desks, chairs, video-conferencing systems, coffee machines, papers, printers, stationaries, etc. for its operations. Similarly, a steel plant needs iron ore as materials for the production of steels. Firms purchase these materials from other producers.

(b) Households often produce goods and services for their consumption. For example, households produce meals by cooking for their own consumption. Also, households produce services such as child care, washing, cleaning, etc. for their own consumption.

(c) The government needs to consume various goods and services for its own operations or to provide public services. For example, government consumes stationeries, furniture, etc, for government offices. Similarly, for say the government purchases CC TV cameras for security agencies, vehicles for the army and for the transportation of government officials, etc.

Government produces various goods and services. For example, the publicly funded roads, airports, seaports, etc. are examples of government production.