A manufacturer aims to find the price that will result in the highest total profit. If it reduces the price, usually it will sell more products. If a manufacturer charges a high price for a product, usually it will sell few products. Price strongly affects supply and demand. The amount companies produce is called supply. The amount consumers want to buy is called demand. They also look at why companies choose to produce one good or service rather than another.
They try to explain why consumers buy one product rather than another. MicroeconomicsĮconomists who study microeconomics look at how consumers spend their money. The study of how a whole country’s economy works is called macroeconomics. The study of individual consumers and businesses is called microeconomics.
There are several different branches of economics. The producers and consumers in an industry together form a market. Producers of similar goods or services compete with each other for consumers. Industries that sell services are called service industries. Industries that make things are called manufacturing industries. And most consumers get their money by working for companies.Īll the companies producing a particular kind of product or service are grouped together in what is known as an industry. Companies get this money from consumers who buy their goods or services. Rather, it is the means by which companies pay for land, labor, and capital. Money is not counted as a factor of production. This includes the tools, factories, and offices that are used to make the goods and services. (Profits are the money that a business keeps after paying costs.) The third factor of production is capital. Workers may be rewarded with wages, or-if they own the business-with profits. The second factor of production is labor, or people who work for pay. Land also includes natural resources like oil and minerals. Land can mean a large farm or a tiny workshop. There are three major factors in production.
The process of creating the goods and services is called production. People who buy these goods and services are called consumers. Services are things that people do for others-for example, gymnastics lessons, banking, and dental care. Goods include such objects as apples, cars, and roads. A society creates wealth by producing goods and services.
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