Sectors of an Economy

The sectors of an economy in macroeconomics include the household sector, producer sector, government sector and the external sector (rest of the world).

Sectors of an economy:

Sectors of an economy refer to the particular group of people with homogenous characteristics. From the macro point of view, the economy can be classified into four sectors:

  1. Household Sector
  2. Producer Sector
  3. Government Sector
  4. External Sector

Household Sector : 

It refers to the consumers of goods and services. In other words, this sector involves the people for whom the goods and services are produced in the economy. This sector also owns the factors of production. Thus, also known as owners of FoP(factors of production).

Producer Sector:

It refers to all the producing units or firms in the economy. Generally, the firms hire/purchase factors of production i.e. land, labor, capital, and entrepreneurial skills from households for the production of goods and services. Hence, This sector majorly influences the economic growth of any economy by producing more and investing more.

Government Sector:

It refers to Government that has a statutory authority which includes:

  1. Government as a welfare agency.
  2. Government as a producer.

As a welfare agency, its main aim is to provide social welfare in society. And, as a producer, the government has its control over some producing units n the economy. In other words, the government as a welfare agency performs such welfare functions as law, order, and defense. Also, This sector sometimes regulates all other sectors including households, producer sector, and external sector through its policies. 

External Sector of the economy:

It includes all those activities which are related to the export and import of goods from one country to another country. It also includes the flow of capital between the domestic economy and the rest of the world. Thus, it is also known as the rest of the world sector.

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Introductory Microeconomics – Class 12 – CBSE (2020-21)

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