Economy: Economic Decision Makers
In Microeconomics, the customers are the decision makers but for Macroeconomic, market is the decision making. The act of deciding on matters of the economy. Economic decision making is routinely conducted by finance ministers, economic advisors, heads of major central banks and business leaders and can have profound effects on a major economy. Economic decision-making consist of decisions made by market people to reach their objectives and goals in making decision. This economic decision-making has four types, which is important for marketers and even customers to understand when making decisions on the things related to them.
These economic-decision makers are the household, the firm, the government, and the rest of the world. They are important because they are involved in each decision a market person made when elaborating their thoughts on what to buy or what they do not need to buy. This decision-making defined as the process of making business decisions involving money according to my research. With that being said, if a businessperson or anyone does not follow this, it may cause damage to their earnings or revenues of their business or each person will lose a lot from making decisions without thinking of these.
The definition of household in the book is “it plays the starring role in a market economy” (McEachern, William A. Macroeconomics: A Contemporary Introduction, Chapter 3, 3-1). Household can happen to each person when they are thinking where to live, where to work, what to buy, and what would be good for whatever they are doing.
Now a day only few people are producing their own foods, most are focusing only on groceries from stores which is an easy way for them but the problem is it decrease each revenue earned from them. Another one is that people are starting to work away from home, meaning they are leaving their houses to earn higher revenue from their homes because they feel like it’s worth their time than staying home and doing work there. The evolution of household is primarily an individual’s decision in what kind of job or chore they are willing to do at their houses such as cooking meal, farming and etc.. Households focuses on those years ago but now it has changed to going back and forth from home to any workplace a person thinks it’s suitable for them. According to the Macroeconomics textbook it stated that “ The rise of two-earner households has reduced specialization in household production—a central feature of the farm family. Households now produce less for themselves and demand more from the market. For example, child-care services and fast-food restaurants have displaced some household production (Americans now consume at least one-third of their calories away from home). Nonetheless, some production still occurs in the home” (McEachern, William A. Macroeconomics: A Contemporary Introduction, Chapter 3, 3-1a). Another important thing in an household is their spendings, there are different three kinds of broad spending in an household too and they are durable, non-durable and services. Durable is define in the textbook as goods expected to last three or more years—such as an automobile or a refrigerator(Page 3-1d), non-durable is defined as food, clothing, and gasoline(Page 3-1d), and lastly is services which means haircuts, air travel, and medical care. As you can see from panel(Page 3-1d). These three broad spendings helps a person maintain their budget on which to spend on the most and which is important to take care of first. Another thing is that household maximize utility.
The next one is the firm, firm is define in the book as “members who built their own homes, made their own clothes and furniture, grew their own food, and amused themselves with books, games, and hobbies” (McEachern William A. Macroeconomic: A Contemporary Introduction, Chapter 3, 3-2). There are three types of firms and they are sole-proprietorship, partnership, and corporation. “A sole proprietorship, also known as the sole trader, individual entrepreneurship, or proprietorship is a type of enterprise which is owned and run by one person and in which there is no legal distinction between the owner and the business entity” (Sole-Proprietorship, Wikipedia). An example of a sole proprietorship is dentists who works alone and earns profit only for themselves without sharing it to others like in partnership. A partnership is two or more people collaborate in business as partners to work together in a company that is run by them and each person has to have their own shares with which one leaves he or she takes their shares with them. The last one is corporation, a corporation is an organization or a group of people working together as one company to build their and set their own goals in a business. Through evolution of firm, “If the consumer had to visit each of these specialists and reach an agreement, the resulting transaction costs could easily erase the gains from specialization. Instead of visiting and bargaining with each specialist, the consumer can pay someone to do the bargaining—an entrepreneur, who hires all the resources necessary to make the sweater” (McEachern William A. MacroEconomics: A Contemporary Introduction, Chapter 3, Page 3-2a). An example of that can be when the product or service is not suitable for that individual to handle and dislike due to the brand, packaging, and model of it. “Just as we assume that households try to maximize utility, we assume that firms try to maximize profit. Profit, the entrepreneur’s reward, equals sales revenue minus the cost of production, including the opportunity cost of the entrepreneur’s time” (McEachern William A. MacroEconomics: A Contemporary Introduction: Chapter 3, Page 3-2a). There is and equation stated in the textbook which is for the profit and that is COST-REVENUE=PROFIT.
Another one is the government “governments play some role in every nation on Earth” (McEachern William A. Macroeconomics: A Contemporary Introduction, Chapter 3, 3-3) Government is those looking at everything everywhere in a nation that needs repair or needs the help or fund of a government. Government also has an equation used for businesses in the U.S that they call GDP meaning gross domestic product. The GDP is total value of all final goods and services produced in the United States. Government does not only focus on things like helping repair things that need to be repaired but they also provide things that would help a nation’s business to run efficiently and useful for the citizens. The government also provide taxes for workers under their care in the United States that is another helpful thing for most people working there and also food stamps is another helpful thing provided by the government. Governments are the ones that establish and enforce the rules of the game, promote competition, provide public goods, deal with externalities, equal distribution in income and provide full employment, price stability, and economic growth. The government strictly focuses on everything their economy is doing and what it is like, they provide help to wherever needs their hands to be set on and take care of. Their revenues and profits are the peoples too, the source of the government revenue is, “Taxes provide the bulk of revenue at all levels of government. The federal government relies primarily on the individual income tax, state governments rely on income and sales taxes, and local governments rely on the property tax. Other revenue sources include user charges, such as highway tolls and college tuition, and borrowing. For additional revenue, some states also act as monopolies in certain markets, such as selling lottery tickets and liquor” (McEachern William A. MacroEconomics: A Contemporary Introduction, Chapter 3, 3-3d). Taxes are mainly the government’s job to collect and retain from businesses that does turn in taxes. There are many kinds of taxes that a government used to collect from the people and not just from people but also businesses. “The structure of a tax is often justified on the basis of one of two general principles. First, a tax could relate to the individual’s ability to pay, so those with a greater ability pay more taxes” (McEachern William A. MacroEconomics: A Contemporary Introduction, Chapter 3, Page 3-3A).
In conclusion, economic decision makers consist of these three types of economic decisions are so far one of the most useful macroeconomic things used in a business and for marketers. Household, firms, and government combined as the main objective of the economic decision-making for people to understand the lifestyle and what they are consisting of is important for each nation. Marketers and customers each make their own decisions regarding the economic decision-making that helps them achieve their goals in all the types of economic decision-makings.
- McEachern, William A. 11th Edition
- Macroeconomics: A Contemporary Introduction Google: Economic decision makers