Producers and their role in the economy

Producers (enterprises and firms) are the backbone of any economy. Their aim is to supply goods and services, seek profits and compete with one another. They are transform inputs into outputs.  There is labour, capital and natural resources are the main factors of production.

Every economy faces the problem of what, how and for whom to produce. Market economy solves this problem thanks to the law of supply and demand, which states that imbalances in the market corrects by changes in prices. It is imbalances between the quantity of the goods that buyers want to purchase and the quantity that producers want to sell.

When price of a good or service goes down, people increase their purchases, when it goes up demand cut down. Producers, when price goes up, increase their output. When there is shortage at the market, supply increase and producers have a chance to make an extra profit.

Perfect market is the model of market, where are a lot of buyers and sellers and competition is free. Monopoly is situation, when there is one seller or a very limited numerous of sellers in some markets.