Definition: In economics, a producer is an economic unit that manufactures or commercializes goods or services. Simply put, these are entities that supply the economic system.
What Does Producer Mean in Economics?
A producer might have different shapes. Since this is an economic term this definition is very wide and includes any economic activity that supplies a good or service to society. By using and combining the factors of production (land, labor, capital and technology) these organizations or individuals produce an output. This output constitutes the supply side of the market. To some economic schools and theories, producers are defined even more widely to include federal governments, municipalities, government agencies and even households. Producers are essential for an economic system to function properly.
Having a low number of producers can increase the chances of getting high inflation rates, unemployment, monopolies and scarcity. By widening the range and number of producers within a given economy the supply increases and these producers start competing with each other, which in turn increases productivity and a better economic environment.
Example
Mr. Donahue is a farmer that owns a small family ranch in Dallas, Texas. His family has been working their ranch for many years and most of what they produce they use it to sustain themselves, but they also sell a portion of the production to the open market. One of their main products is butter. The family has a small company called Donahue Butters Co. and they sell butter in different presentations to the local stores. According to our definition, can they be considered producers?
Producers, as we previously defined them, are those who manufacture or commercialize goods or services. The Donahue family does this with many of the things they produce in their ranch and also trough the butter company. This means both the family and the company should be considered producers from an economic standpoint.
