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Roles of Households for Building an Economy


Read this article to learn about Roles of Households for Building an Economy!


Households are the main sector for the consumption of an economy.

The performances of the households are categorised into two ways:


(a) It supplies the factor services to the firms in the form of factors of production like land, labour, capital etc.

(b) It purchases all the final goods and services produced by the firms from the markets directly. Hence, they supply different factor services to the economy and on the other hand they create demand for the final goods and services from the market.

Role of Households:

The roles and importance of households for building an economy are immense.

Some of the performances are briefly given below:

(i) Act as a producer:


There are several families in India who are the owners of several small production units. These households act as entrepreneurs or producers of different goods and services. They form the enterprises which are basically semi-corporate in nature.

(ii) Act as a consumer:

The households are the final consumers of goods and services produced by the firms. They create demand in the market and according to their tastes and preferences. The firms produced and supplied goods in the market, as per their demand. Therefore, households determine the production line of a country.

(iii) Act as a tax-payer:

Households are the main sources of the government tax-revenue. They are the main tax-payer. A household pays income tax, wealth tax, estate duty, gift tax etc. as direct taxes to the state. Similarly, a household pays several indirect taxes to the government like sales tax, customs duty, VAT etc. also. All these tax revenues are collected for the welfare and development of the economy.

(iv) Act as a professional:

All types of professional services like doctor, teacher, lawyer, engineer etc. come from households. Their activities are very much required for the country to enhance economic development. These professional services increase the living standard of the people,

(v) Act as a saver:


Income left after consumption is saving. Hence households earn money income after giving several services to the economy. The portion of their income left after the consumption, is saved in the banks or financial institutions. These savings are considered as one of the main sources of capital formation in India.

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