Market Economy

The United States Economy can be divided into three groups business, households, and government and they are all interconnected (Colander, 2010). First businesses provide goods and service and sell them to households. Next households supply labor and other needs to business to produce goods and service. Finally the government is a referee and tax collector as a referee the government set rules that build relationships between businesses and households. Then as a tax collector the government collects money to build improvements including education, roads, and defense. This paper is intended to show how each activity affects the service at all levels (Colander, 2010).

Purchasing of groceries is a necessary economic activity and affects all three groups. Business have to determine what to produce and how much to produce this is determined by households, because if a business is producing goods that households do not want to buy then they have to sell the goods at a minimum mark up to meet the demand of the product. On the other hand if they are producing products for the grocery store that is in high demand and cannot keep up with the demand they can offer the product at a premium. This affects the government because the higher the price the more tax revenue is generated creating a surplus of funds to fund public and government projects.

Massive layoff of employee in the market economy affects government, households, and businesses by reducing the ability of all to produce and buy goods. When a business has a massive layoff it usually means that the product that they are producing or the service that they are providing is no longer needed at a high capacity, but unfortunately for households that are affected by the layoffs it means that they no longer have the means to buy luxury goods and are operating on a reduced budget and have to seek new jobs. For some this might be easy but for others that are older or do not have the skills to get a job that pays them equal to or more than what they use to make could become a long term problem and cause a domino effect making it harder for them to hold on to what they spent many years building. For the government this means a reduction in tax income not only from the business and its payroll taxes but also from the goods or service that are no longer being produced. Also the government has to pay out more money to unemployment claims and they also are not collecting tax money on goods from households that can no longer buy other goods that are being produced by other businesses.

Decrease in taxes can be positive and negative for households, businesses, and the government. Taxes are paid by households and businesses to the government to fund private and public projects Taxes are collected through the purchases of goods and service and also through property taxes and payroll and business taxes. A decrease in taxes on households can be positive to the economy because it gives households