Question

What is the importance of households in an economy? Give two points.

Answer 1

The various aspects of the importance of households are discussed below:

1. Source of Demand: Consumers are the biggest source of demand for various goods and services produced in an economy. The greater the demand, the larger will be the production of goods and services. 
2. Diversification in Production: Different consumers have different preferences or likings. Some consumers like butter while others prefer ice cream. Some consumers prefer scooters whereas others like motorbikes, etc. As a result, producers are encouraged to diversify their products. They tend to produce goods of different designs and colours to attract the consumers towards their products.