Consumers are individual or household units that use goods and/or services produced by suppliers. They play a major role in the economy, as their buying habits heavily influence a market's demand.

  • The Circular Flow
Consumers go under households in the circular flow. In the perfect circular market, consumers buy finished goods, and pay the firms with money. Consumer expenditures thus allows firms (i.e. Suppliers) to continue supplying their products. The cycle continues infinitely, though its activity varies with the health of the economy.

Consumers buy finished goods and services in turn for consumer expenditures, which then go on to fund suppliers in their producing of more products.

  • Consumers' role in Demand
In a closed, mixed market, demand signifies the amount of goods and services that consumers are buying. In the case of a closed, mixed market, expenditures by consumers consist of 1. Consumer Expenditures, 2. Investment, and 3. Government Spending. It can be said that quantity demanded by consumers is inversely related with the price of that product.

The whole demand curve could shift, in accordance with several other factors including, but not limited to, consumer income, and changes in taste. This shift in the demand curve basically signifies that consumers are willing to buy more or less of a product at a certain price over a certain span of time.
  • Income Effect
As a general rule, when prices fall, consumers are willing AND able to buy more of a product, and when prices rise, people are unable to buy as much, This is known as the income effect. (e.g. Jim has $30.00. When his favorite candy bar costs $3, he is able to buy ten, but when its price lifts to $5, he is only able to buy 6.)
In a price change, other things equal, the equilibrium on the demand curve shifts, even though the curve doesn't itsekf, When the 'cetaris paribus' factors, such as income or taste, change, the curve itself shifts either to the right or to the left.

Producers are the firms that create finished products and services.Their role is also imperative in the market, since they are the ones who sell products and their utilities.

  • Producers in the Circular flow
In the circular flow, producers hold the role of Firms. The firms use the money that consumers spend in order to create more of their product. In order to create more of their product, producers must efficiently allocate factors of production (land, labor, capital, entrepreneurship). In order to exploit these resources, producers must pay for them. This payment comes in the forms of rent, wage, interest, and profit respectively. Once the product or service is finished, it is then sold off to consumers who pay themselves for its use. And in doing so, the cycle continues infinitely.

  • Producers role in supply and equilibrium
In any market, producer behaviors heavily influence the supply curve. In general, prices and amount supplied are directly related. This can be explained with pure logic, as when prices are higher, producers can produce more of a product than they could with a lower cost. The supply curve can shift if other factors, such as changes in machinery, consumer incomes, or input price, change. And such a shift basically signifies that producers are willing to produce more or less of a product at a certain price over a certain span of time.

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