In an economy, there are people who supply goods and services at a cost, and people who demand those goods and services and pay for them. The laws of supply and demand set prices. If there is a lot of demand, the prices increase. If the supply of goods is high, the prices go down. If the price drops too low, the manufacturers may reduce the supply.

In economics, the market is a place, or a network, where buyers and sellers exchange goods and services for money. All activity in the market depends on the supply of, and demand for, these goods and services.

In traditional economies, people produce the goods they need on a small scale, and sell the surplus (what they do not need) at local trading centers, or markets. In command economies, all economic activity is controlled by the government rather than private companies or market forces. In a mixed economy, some industries are privately owned by companies and others, such as public transportation, are publicly owned and run by the government.

Domestic work, such as housework, is not considered part of the economy, unless someone is paid to do it. The portion of a nation’s income that is (illegally) not declared for tax is called the black economy.

Production involves the use of Earth’s raw materials and human labor to make useful things. Every society uses its land, people, skills, and tools to make products, from gasoline to stainless steel and running shoes. In modern economies, companies aim to maximize profits by keeping their production costs down and their sales up.

Someone who buys goods and services is called a consumer. Most people are consumers, because they need to buy basic goods, such as food, shelter, and clothing, in order to live. Producers need to predict what consumers want, so that they can make goods that will sell.

WHAT GIVES CONSUMERS POWER?

Consumers need a way to pay for goods before they can decide which goods to buy. Their buying power comes from income (wages earned by working) or investment (profits made from owning stocks or property). A wide choice of products gives consumers some power over producers, since a company will go out of business if consumers do not buy its product.

Consumers have the most power in markets where there are many traders. It is easy to compare prices and choose between many products and prices on display, such as on a fruit and vegetable stand.