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Explain the role of the government (state) and household sector in both developed and developing countries.

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1. Role of government: In both the developed and developing countries, apart from capitalist sector, there is the institution of state. The role of the state includes framing laws, enforcing them and delivering justice. The state here refers to the government which performs various developmental functions for the society as whole.

It undertakes production, apart from imposing taxes and spending money on building public infrastructure, running schools, providing health services, etc. These economic functions of the state have to be taken into account when we want to describe the economy of the country.

2. Role of household sector: By household we mean a single individual who takes decisions relating to her own consumption or a group of individuals for whom the decisions relating to consumption are jointly determined. Households consist of people. These people work in firms as workers and earn wages.

They are the one who work in government departments and earn salaries or they are the owners of firms and earn profits. Therefore, the market in which the firms sell their products could not have been functioning without the demand coming from the households. Further, they also earn rent by leasing land or earn interest by lending capital.

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