In an

economy An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

production Production may refer to: Economics and business * Production (economics) * Production, the act of manufacturing goods * Production, in the outline of industrial organization, the act of making products (goods and services) * Production as a stat ...

consumption Consumption may refer to: * Eating *Resource consumption *Tuberculosis, an infectious disease, historically known as consumption * Consumer (food chain), receipt of energy by consuming other organisms * Consumption (economics), the purchasing of n ...

and

exchange Exchange or exchanged may refer to: Arts, entertainment and media Film and television * Exchange (film), or ''Deep Trap'', 2015 South Korean psychological thriller * Exchanged (film), 2019 Peruvian fantasy comedy * Exchange (TV program), 2021 Sou ...

are carried out by three basic economic units: the

firm A company, abbreviated as co., is a Legal personality, legal entity representing an association of legal people, whether Natural person, natural, Juridical person, juridical or a mixture of both, with a specific objective. Company members ...

, the

household A household consists of one or more persons who live in the same dwelling. It may be of a single family or another type of person group. The household is the basic unit of analysis in many social, microeconomic and government models, and is im ...

, and the

government A government is the system or group of people governing an organized community, generally a State (polity), state. In the case of its broad associative definition, government normally consists of legislature, executive (government), execu ...

. # Firms #: Firms make

decisions. These include what

goods In economics, goods are anything that is good, usually in the sense that it provides welfare or utility to someone. Alan V. Deardorff, 2006. ''Terms Of Trade: Glossary of International Economics'', World Scientific. Online version: Deardorffs ...

to produce, how these goods are to be produced and what

price A price is the (usually not negative) quantity of payment or compensation expected, required, or given by one party to another in return for goods or services. In some situations, especially when the product is a service rather than a ph ...

s to charge. They employ the various

factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the rela ...

and they sell the finished goods to the households for consumption and to the government. # Households #: Households make consumption decisions and own factors of production. They provide firms with factor services in production, and buy finished goods from firms for consumption. # Government #: The government collects

tax A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax co ...

es from households, buys goods from firms, and distributes those goods to households individually or collectively. It also redistributes purchasing power between households.

References

Microeconomics {{Economic-term-stub

See also

References