The Role of Consumers and Producers in the Economy – Kuri007.com

The Role of Consumers and Producers in the Economy – Without realizing it, there are limited number of means of satisfying needs on this earth. Therefore, humans must always carry out economic actions in carrying out economic activities, both with regard to the business of producing goods and services (production), as well as using means of satisfying needs (consumption).

That is, every use of natural resource capabilities and means of satisfying needs must be able to produce maximum satisfaction or profit for the culprit.

In life as well as economic action, humans must always take into account the comparison between the sacrifices and the results that can be achieved. One example, an investor is faced with two time deposits that both have a fixed term of 1 year, but with a choice of 5% and 10% interest. Which one can he choose? If we take into account the exact similar sacrifice (1 year), then surely a 10% interest deposit will be better than the other alternatives.

Basically, economic commitment is a guide for humans or economic actors in carrying out economic activities to achieve maximum results. Consumers and producers who form the foundation of the country’s economy also act based on the same principles. Here’s an example.

The Role of Consumers in the Economy

You must have started to get confused when choosing goods on the market. With a limited amount of money in your wallet, you must carefully select the choices of items that can be purchased.

For example, you are given an allowance of IDR 44,000 per day. In one day, you can save IDR 2,000. After one month, your savings have reached IDR 60,000. At the beginning of the next month, you want to shop for notebooks, bags, pens, and textbooks.

Not all subsequent needs can be met at once, given the limited funds you have. So, you must be able to choose what needs to be prioritized.

Manufacturers provide a variety of goods and services, so that each customer can choose more selectively. If you are selecting items based on price rather than quality, then you can shop for inexpensive pens and books.

If consumers in an economy aggregately tend to only choose inexpensive goods, then producers can prioritize producing inexpensive goods over quality goods (which may only be able to be sold at a higher price).

As a consumer, of course you have a very big role in choosing a choice of goods or services. In more detail, the role of the customer has roles, among others:

Consumers as users come from goods or services produced by producers.
Consumers as a motivator for the busyness of the company. The more goods or services used by consumers, the higher the producer’s stimulus in producing these goods or services.
Consumers can create a multiplier effect in creating an increase in a country’s national income.

Because of the big role of this consumer, there are special countries that are said to have a “consumer-driven economy” (consumer-driven economy). Its distinctive feature is that consumer spending provides the largest additional contribution to Gross Domestic Product (GDP) compared to the components of investment, government spending, and net exports. One example of a consumer-driven economy is the United States where consumer spending also accounts for more than 60 percent of GDP.

The Role of Producers in the Economy

In the classical type of economy, producers are one of the four main actors of economic activity. The role of producers is very important, because they are providers of goods or services needed by three other economic actors: consumers, the government and foreign countries. Apart from that, they also play a role as payers for employees, consumers of raw materials (SDA), determine the direction of environmental use, and so on.

On the other hand, producers are very responsive to changes originating from the other three economic actors. If customers face a famine and are unable to absorb production, then producers will feel a decline in sales.

If the government chooses taxes that are too high to the point that consumers are reluctant to spend, then producers will also face a decline in sales. Or unless there is a crisis abroad, then the demand for exports received by producers will certainly decrease.

If manufacturers start a healthy business climate and are optimistic about the prospects for economic growth in the future, they can build new factories, recruit new employees, increase employee salaries, and so on. In turn, the optimism of collective producers in a country can stimulate the economy and promote sustainable economic growth. In a consumer-driven economy, employee salaries change

On the other hand, unless manufacturers start to have a bad business climate, then they can cut back on business expansion. Along with deteriorating economic conditions, they may be reluctant to increase employee salaries, stop recruiting new employees, carry out termination of employment (PHK), or even to the point of closing factories one by one and then going out of business. Economic conditions that are getting worse and worse like this are called recessions.

Conclusion

An understanding of the role of consumers and producers is one of the foundations in the fundamental assumptions for various assets in the financial market. For example, if it is related to the effect of interest rate policy on producers and consumers.

Lowering interest rates can reduce the cost of debt for both producers and consumers. Manufacturers can actively build new factories thanks to low-interest loan funds from banks, while customers can be encouraged to use their credit cards.

If so, why not just zero interest? Again, this is related to the behavior of producers and consumers. Imagine what will happen unless the customer is free to borrow as much as possible, even though the production capacity of factories is growing more slowly.

As a result, the supply of money for shopping for goods is too much, even though the supply of goods is small. Over time, the prices of goods and services can soar even higher, leading to high inflation or even hyperinflation.