Explain the relation between production and consumption.
Production is the process of conversion of raw material to final product using different factors of production, i.e. Land, Labour, capital, entrepreneur and management. Once the final product is made, consumer consume these products by exchanging these goods with money for the satisfaction of his needs. A producer makes money by selling a product to a consumer and the profit is shared among different factor of production. A producer is also the consumer, he uses the money earned to buy goods and services made by other producers to satisfy his needs. Labour used in the production of goods receives his part of the profit which he uses for the consumption of other goods and services. In an economy, everyone is a producer and consumer are some of the other ways. This chain of producer and consumer maintain money flow in the economy.
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