Question

What are the two main categories of participants in markets? Which participants are of greatest importance in determining what goods and services are produced?

Answer 1

The two main categories of participants in the market are :

• Firms
• Households

Households are of greatest importance on determining what goods and services are produced.

The equilibrium in the market is decided by the demand and supply forces. The producers tend to produce goods with more demand more and the goods with less demand less. This is because, if there is no demand and still the producers continue to produce, the supply of the good will increase while the demand will not change and this will create a situation of excess supply in the economy, in order to reach equilibrium, this will thus put a downward pressure on prices, proving to be a loss to the producers. So the demand is an important factor in determining what goods and services are produced.