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The fundamental decision-making units in a market economy are firms and households. A firm is an entity that produces goods or services. Firms take resources (like labor, capital and other inputs) and transform them into products that people or other firms wish to purchase. An example of a firm would be an automobile producer that takes labor, tires, sheet metal, machinery, and other inputs and transforms them into cars and trucks. Firms also include less obvious examples, such as video rental stores. These take videotapes purchased from other firms and combine them with a store, cash registers, shelves, advertising, and personnel to bring those videos to you. Firms are the primary producing units in a market economy. Each firm started out as the dream of one or a few individuals. People who are responsible for taking new ideas or new products and turning those ideas into successful businesses are known as entrepreneurs. Entrepreneurs are also often responsible for organizing, managing, and assuming the risks of a firm. To get an idea of some of the responsibilities that entrepreneurs assume, look over the various aspects of starting and running a business provided in Starting Your Business. Another good site information and discussion on entrepreneurs is the "Young Entrepreneurs' Organization" site. It provides a good starting point for those who are interested in going beyond the text's discussion of entrepreneurs. In addition to firms, households form the other fundamental component of market economies. Households can range from individuals living alone and single-parent families to college friends sharing a house, as well as extended families living together. Households are described in the text as the primary consuming units in an economy. While such a description does not capture the richness of what households can be, it does describe one of their primary roles in the economy.
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