Skip to main content

What is a Consumer, Producer, Consumer Equilibrium and Producer Equilibrium in Economics?

What do we Study in Economics?

Economics studies how people make decisions or choices in order to meet their needs with their limited resources. Now who do we define as people in Economics? “People” in Economics covers a broad spectrum of human beings which we define as Consumers, Producers, Sellers, Labourers, Savers, Investors, Firms etc. In Economics, we basically study the behaviour of these Consumers, Producers, Sellers, Labourers, Savers, Investors, Firms etc.

Definition of Consumer: 

A consumer is any individual or group of individuals who buy or purchase the goods and services for their personal use or direct use.  Personal use means the goods and services are not sold further for profit. Goods and services are consumed because it gives consumers utility.

In Economics we study “consumer behaviour” in the wake of them buying goods and services. The study of consumer behaviour analyses how consumers decide which goods and services to buy with their limited income, how much or what quantity goods and services to buy, how much of their income to spend on buying goods and services vis-a vis saving, what are the factors that consumers keep in mind while deciding to buy goods and services. The main purpose of studying consumer behaviour is to find out Consumer’s Equilibrium.

What is Consumer Equilibrium? 

It is that level of consumption at which the consumer is getting maximum satisfaction (benefit) when he/she is spending out of his given income and has no tendency to change from the current level of consumption as long as there is no change in his/her income, prices of goods and services and other factors.

What is a Consumer?


Examples of Consumer: 

There are numerous examples as almost everyone is a consumer of goods and services, let’s take some examples-A person buying bread from a shop, a family going to a restaurant for dinner, going out for a movie with friends, purchasing a washing machine, fridge and other home appliances for direct use (personal use). Let us take the case of a car being purchased by a family to travel from one place to another and another car being purchased by a taxi service company. For the family, the car is of a personal use at the members of the family can use it go to work, travel, shopping etc. But, in case of the taxi company, it uses the car not for their personal use but to earn profit by transporting passengers from one place to another. Similarly, a washing machine when bought by a laundry company is used to earn profit and not used directly or personally. In these cases of the taxi company and laundry company the good bought becomes a capital good rather than a consumer good. Therefore, the same good can be a consumer good for one and a capital good for another depending upon the purpose of use.

What is a Producer? 

A producer is an individual or group of individuals engaged in making or creating the goods and services. These goods and services are produced with the help of resources such as land, labour, capital, entrepreneurship, technology which are known as factors of production.

In Economics we study “producer behaviour” in the wake of them producing goods and services. The study of producer behaviour analyses how the producers decide which goods and services to produce with their limited resources, how much or what quantity of resources such as capital and labour to use in the production of goods and services, what are the factors that producers keep in mind while deciding to produce goods and services. The main purpose of studying producer behaviour to find out Producer’s Equilibrium.

What is Producer's Equilibrium?

It is that level of production at which the producer is getting maximum profit when he/she is utilizing his/her limited resources (land, labour, capital, entrepreneurship) and has no tendency to change from the current level of production as long as there is no change in resources, cost of resources and other factors.

What is a Producer?


Examples of Producer: 

Let’s take some examples-A person baking bread, a restaurant making and serving food to customers, individuals or firms engaged in the production of goods such as washing machine, fridge and other home appliances. A producer may be the seller of his/her goods and services or another individual (or group of Individuals) may be selling their goods

It should be noted that producers are also consumers of other goods and services and consumers in households are engaged in the production of goods and providing services. Even Governments for that matter are the producer of goods and services and consumer of goods and services.

Similarly, the behaviour of Sellers, labourers, Savers and Investors is also studied under economics.

Key Points

  • In Economics, we basically the study the behaviour of  Consumers, Producers, Sellers, Labourers, Savers, Investors, Firms etc in an economy. 
  • A consumer is any individual or group of individuals who buy or purchase the goods and services for their personal use or direct use.  Personal use means the goods and services are not sold further for profit. Goods and services are consumed because it gives consumers utility (usefulness/enjoyment).
  • Consumer’s Equilibrium is that level of consumption at which the consumer is getting maximum satisfaction (benefit) when he/she is spending out of his given income and has no tendency to change  from the current level of consumption as long as there is no change in his/her income, prices of goods and services and other factors. resources have alternate uses. 
  • A producer is an individual or group of individuals engaged in making or creating the goods and services. These goods and services are produced with the help of resources such as land, labour, capital, entrepreneurship, technology which are known as factors of production.
  • Producer’s Equilibrium is that level of production at which the producer is getting maximum profit (benefit) when he/she is utilizing his/her limited resources (land, labour, capital, entrepreneurship) and has no tendency to change from the current level of production as long as there is no change resources, cost of resources and other factors.

Popular Posts

Consumer's Equilibrium using Marginal Utility Analysis

The Law of Diminishing Marginal Utility It has been observed that the desire to consume a commodity decreases as more and more units of that commodity are consumed. Therefore, every successive unit of the commodity consumed provides lesser utility than before. The Law of Diminishing Marginal Utility states that as more and more units of a commodity are consumed, the Marginal Utility derived from every successive unit of the commodity declines.  This happens because psychologically, as a consumer starts to consume one unit of the good after another, the the consumers satisfaction reaches a saturation point. So, with every successive unit consumed, the additional utility the consumer derives goes on declining.  Consumer's Equilibrium using Marginal Utility: Cardinal Analysis Consumer's equilibrium is that level of consumption at which the consumer is getting maximum satisfaction (benefit) while spending out of his given income across different goods and services, and has no tende

Understanding Trade-Offs in Economics: Balancing Choices for Optimal Outcomes

  TRADE-OFFS  Economics is concerned with people making decisions. However, these decisions are not always easy to make as making a decision involves making a choice. This choice may be between different alternatives/goals/options. Generally, choosing one goal means not being able to choose the other one. This results in what we call a trade-off where in order to choose one thing we have to let go or sacrifice the other one. Examples of Trade-Offs:  P eople face numerous trade-offs in their daily lives. Let’s say a person wants to reach his office. He may either go by car or bicycle. Going by a bicycle is not only environmentally friendly but also is a good exercise. However, going by a car will save time and make him reach faster. This is a situation of trade-off where the person has to choose an option and in choosing one, he will be giving up the other one. A family which has a limited monthly budget has to decide whether to spend that money on a vacation, saving for their chil

Measures of Dispersion

The measures of central tendency do not always show the real picture. Take for example, the following numbers 35, 35, 35, 35, 35 and  20, 25, 30,45, 55  The mean of both the series is 35. That is 35 is representative of both the series. However, there is variability in data. In the first series, all the values are equal to 35, in the second one, they vary and none of the values is 35. So, we say that dispersion or variability exists. We can find this dispersion amongst the values and between the values and the mean. The methods to find them are the measures of dispersion. They are  1. Range 2. Quartile Deviation 3. Mean Deviation 4. Standard Deviation 5. Lorenz Curve