Firms make
production decisions. These include what
goods to produce, how these goods are to be produced and what
prices to charge. They employ the various
factors of production 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.[1]
Government
The government collects
taxes from households, buys goods from firms, and distributes those goods to households individually or collectively. It also
redistributes purchasing power between households.[2]
Firms make
production decisions. These include what
goods to produce, how these goods are to be produced and what
prices to charge. They employ the various
factors of production 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.[1]
Government
The government collects
taxes from households, buys goods from firms, and distributes those goods to households individually or collectively. It also
redistributes purchasing power between households.[2]