3. Households

In economics, a household is a group of people who pool their incomes, own property in common, and make economic decisions jointly. People who do not belong to such a group are counted as one-person households.

Households play two major roles in the economy: they supply inputs that are used to produce goods and services, and consume the goods and services that are produced.

The inputs supplied by households are known as factors of production. There are three of these. Labour consists of the productive contributions made by people working with their minds and their muscles. Capital consists of all the productive inputs created by people, including tools, machinery, structures, and intangible items such as computer programs. Natural resources include everything that can be used as a productive input in its natural state, such as farmland, building sites, forests, and mineral deposits. In return for the labour, capital and natural resources they sell to producers, households receive incomes, which they spend on goods and services. Firms buy factors of production from households and use them to produce goods and services. Firms come in many shapes and sizes: from small stores and family farms to huge corporations.