The economy is a complex, multi-component system, all of whose subjects and processes are interdependent. The interaction of participants (entities) is associated with the action of economic laws and is based on the principle of limited resources. But we should consider in more detail how the activities of the main participants in the economy are interconnected.
Consumers and manufacturers in the economy
Economic participants can be divided into consumers and producers. At the same time, one and the same participant in different economic processes can act in one form and another. It depends on what role he will play in a particular process. Before considering how the activities of the main participants in the economy are interconnected, it is necessary to consider in more detail who these entities are.
Subjects of the macro level and the level of the national economy (microeconomics)
Economic entities, or the main participants in economic activity, can be defined both at the macro level and at the micro level. Within the framework of the national economy, the state and the public sector will occupy the upper level, and the person (as the most dynamic and flexible participant in the economy) will occupy the micro level. Within the framework of the international economy, the macro level will comprise the entire world economy, which is an even more complex system of interconnections of all countries of the world.
Participants in economic relations
- Man as an economic unit of all processes, on the solution and choice of which economic processes of the micro level are built.
- Households are an association of individuals (they may also consist of one person). In the household, economic decisions, choices, processes of consumption and production are carried out collectively. This means that there is a certain balance of interests between members of the economy. Within the households, not only the consumption of economic goods can occur, but also their production for the purpose of sale. Production and consumption at this level is associated with the benefits of the consumption structure of each household entity. In other words, the goal is to maximize the satisfaction of needs.
- Firms as participants in economic relations accumulate financial and production resources and attract workers. The main objective of the company is the cost-effective functioning, that is, profit. All production and consumption of the company are directed at this.
- The state can be considered as a special economic participant. On the one hand, it acts as the same consumer and producer of goods and resources, since there are state enterprises and institutions. On the other hand, the state is a guarantor of compliance with rules and norms in the economic field, develops regulatory and legal documents, monitors the creation of competitive conditions for all participants. Great importance is given to the state in regulating the processes of the economy, supporting other economic entities during periods of recession, and restraining from "overheating" of the economy during periods of growth.
The reasons for the interaction of economic entities
All of the listed participants, one way or another, interact with each other. It is important to understand how the activities of the main participants in the economy are interconnected. As you know, the distribution of any resources that can only be determined is uneven, and access to them is different for different entities. That is, each participant has a certain set of resources that the other does not have, in the quantity necessary for certain purposes. Therefore, the economy and its main participants can be represented as a model of the circulation of resources and benefits, when each participant is interested in another entity. This model demonstrates that production factors and production results go through the cycles of creation, distribution and consumption. At each stage, certain resources and subjects of economic relations are involved.
How is the activity of the main participants in the economy interconnected, the subjects of which can be considered from the perspective of the producer and consumer? A producer cannot exist without a consumer and vice versa. Consumer requests for necessary goods create a production system and a set of manufacturers. In economics, their relationship is determined by the mechanism of coordination of supply and demand. When the producer’s offer is supported by the consumer, equilibrium is reached and a deal is concluded between the two entities.
