Interdependent on What?
- Consumers, firms, households, workers and governments (all economic actors) function and interact with one another.
- Interactions and interdependence is also between nations and continents.
- The interactions between economic actors allows us to achieve economic goals and creates a stable economy.
- If one of these economic actors were to disappear, our current economy couldn't function.
- Without consumers and households, there would be no one to pay for the products of firms, and thus no one to pay workers, which make firms money through making products.
- Having firms allows people to specialize in certain forms of work, while their other needs are provided by others specialized in different fields of work.
- Without workers and firms, production, especially on the massive scale required by the size of our population, would be near impossible, as most economies would return to subsistence farming (producing only enough to sustain for oneself).
- Without governments, monopolies, cartels, corruption and exploitation would become the norm, and the economy would become extremely unstable, with no one to keep it in check.
Consequences of Interdependence
- As everything in an economy is interconnected, it can be thought of as a web.
- A vibration on one side of the web, reverberates throughout the entire structure.
- The same thought process can be applied to economics.
- A decision by one economic actor may lead to many unintended, and possibly unwanted consequences.
- The wide range of possible consequences is essential to keep in mind when conducting economic analyses.