Fascinating economy. Larissa Zaplatinskaia
as an Economic Player
So far, you have seen that most economic decisions in the United States are made by individual consumers or businesses. But even under the American free-market system, the government of the United States still plays an important role in the economy. The U.S. government tries to maintain steady growth, keep prices stable, and provide public goods and services. An example of government action came in 2006, when the U.S. government helped stabilize the price of oil by ensuring that oil companies could not raise the price of gasoline above a certain limit. This enabled consumers to continue to afford and use gasoline.
This decision also affected the government, because it also buys a lot of gas. The government plays the role of consumer even while it is attempting to guide and benefit the economy.
Send My Bill to the Government
In many countries, the government plays a more active role in the economy. In Canada, the government provides universal healthcare to all its citizens using taxes paid by workers and businesses. In this case, the government plays the role of producer.
How Does the Government Play?
The government can fill the role of consumer as well as producer. After all, it takes goods and services to run the government. It is helpful, therefore, to think of the government as a very large, public business.
View How Does the Government Play?, then sort the activities into the correct column to show whether the government is playing the role of consumer or producer.
Playing Roles
Consumers and producers play important roles in economics. They decide what to buy or what to produce, and how much of it to buy or to produce. Other players in this game include workers, businesses, and government.
In a free-market system, people are free to decide what to buy. But those choices can be influenced by others. Sometimes people are influenced by family, friends, or advertisements. People are also influenced by what is available, how much it costs, and how much money they have. There are many things that can influence the decisions of consumers.
Producers are also affected by many influences. What do consumers want? What will they pay for those things? What kinds of advertisements help them decide what to buy? These and other questions influence what producers make. Questions about resources influence producers, as well. They need to know what resources are available for production, how much they cost, and how far away they are.
Who Has the Power?
Deciding what to buy seems simple. You choose what you want and pay someone for it. But the buying and selling of goods and services is much more complicated than that. Part of the reason lies in the fact that producers make so many different products. For consumers it can sometimes feel overwhelming. With so much to choose from, it can be hard to decide.
Why do producers make so much stuff? Producers want to sell their goods and services, but not everybody wants to buy the same things. If they did, restaurants would have one-item menus and electronics stores would have only one kind of television.
Consumers have the power to decide what to buy. Producers are aware of this. They make products and services based on what they think consumers will buy. This means producers must pay close attention to how consumers behave. By understanding what consumers have done with their money in the past, producers try to predict what they will be willing to buy in the future. Because of this, consumers have a great influence over the actions of producers. Consumers have a great deal of power over producers.
The Power of Producers
Consumers may make the final choice about what to buy, but that does not mean producers have no power of their own. The choices made by consumers are always limited by what is available. Consumers may want to buy something, but unless a producer makes it, they are out of luck.
Producers determine what is available, and this gives them economic power. For instance, when the quantity of a popular product is limited, consumers will often pay a higher price. For a variety of reasons, including the popularity or rarity of an item, consumers might buy even though the price is high, the quality is not as good, or the choices are limited.
In this way, producers have a great influence on what is bought.
Guessing Game
To sell the things, the goods they make and the services they provide, producers want to know what consumers want. What makes them happy? Producers might make an original product that becomes incredibly popular and sell millions. Or they might make an original product that nobody wants and get stuck with a full warehouse and a lot of unpaid bills. Production sometimes feels like a guessing game.
Producers want to become masters at this guessing game, and they use a variety of methods to do so. Surveys or focus groups are used to test ideas on small groups of consumers. Based on their reactions to new products producers can make better guesses about what the general public will buy.
Collecting information on what consumers like and dislike is called market research. If producers can predict what consumers will buy, what products will be popular, or even simply what people need, they can produce a lot of it. That allows them to sell what they make and grow their business.
Cultural Influences
Producers and consumers influence each other. But the choices made by consumers and producers are also affected by other factors. Culture plays a significant role in economic decisions.
In most societies, the goods and services produced help distinguish one culture from another. Things like food, art, sports, clothing, and literature differ between cultures. Consumers are influenced by their own cultural values and traditions. These traditions influence consumers to buy certain kinds of goods and services. They also have an effect on what producers make.
Producers have to be very conscious of what consumers are going to buy, and many consumer decisions are influenced by cultural values. For instance, many cultures value sports. In the U.S., sports such as baseball, football, and basketball are valued very highly. In Europe and Latin America, soccer plays an important cultural role; in some countries, people are even allowed to take time off work to watch a big game or the World Cup. Sports fans all over the world spend millions of dollars every year on tickets and merchandise, but which sports are valued – and therefore potentially valuable to producers – depends on the culture.
Holidays are another important cultural feature. Thanksgiving is a big holiday in the U.S. People travel by air, car, and train to spend time with their families and eat a special meal. In countries such as Iraq, Lebanon, and Jordan, Eid is a very important holiday. Parents buy their children new clothes, shoes, and toys during Eid, which takes place during three days at the end of Ramadan. They also prepare and share special dishes and take time to visit with family and friends.
In Asian countries such as China, Korea, and Vietnam, the Lunar New Year is the most important holiday of the year. In China, for example, the festivities begin on the first full moon of the year and can last for up to 25 days. The New Year is a time of renewal. Families spend time together eating rich foods and paying respect to ancestors and elders.
Different holidays lead to different consumption decisions, and these consumption decisions affect producers. A producer in China is not going to be very successful trying to sell turkeys in November, but a producer in the U.S. would be wise to go into the turkey business around Thanksgiving.
Peer Pressure
Consumers