The ultimate outcome of economic activity is the final consumption of its products: goods and services.

While it may seem that our economic activity is a vast, complex and directionless web of exchanges of money, goods, and services, this is not so. Economic activity has an overall direction with a flow from beginning to end; this flow is the economic process. The economic process comprises some people producing and distributing things, and other people consuming those things; that is, purchasing and using them. The flow of the economic process starts with collecting the resources that will be used to produce things (products), and ends with those products, goods and services, being consumed.

The process looks like this:

Consumption is always the end point of that economic process, and indicates that the economic process has concluded for any particular product.  All of the exchanges and economic activities, such as smelting, cutting, machining, welding, painting, assembly, transporting, storing, and retailing that occur during the production and distribution of the products only occur so that the final products can be consumed; these final products are called consumer products. The final cost of those consumer products must cover the cost of all of these other activities, so that they can occur.

It may seem that the economic activity of the end consumers when they buy their toasters, washing machines and even cars, is insignificant when compared to the economic activity of producers (the businesses) when they buy their 400 tonne haul truck to haul coal and iron ore, or their vast and complex factories to manufacture those toasters, washing machines or cars, or those 200,000 tonne container ships to transport all of those goods from China to the West, but that isn't so.

All of these things that the producers buy are only bought by them for use in production and distribution, so that they can make the products available for consumers to buy, which is the ultimate intention of businesses. The trucks, factories, and ships are just the tools with which they achieve that end.

The amount of economic activity that occurs within businesses or between businesses is not directly relevant to economic outcomes; if there is not sufficient consumption for the products of the businesses to be bought, then what they have produced will simply remain unsold and be uncounted as economic activity. It is final consumption by consumers alone (not the economic activity of businesses) that defines the size of the economy.

The total economic value of all of the products that consumers buy must be greater than the total economic value of all of the products that the producers buy, or the producer's won't make any money from the process. They would be spending more on trucks, factories, and ships than the consumers would be paying them for the toasters, washing machines, and cars that they make!

Regardless of its possible complexity, the economic process ends with the final consumption of its consumer products: manufactured goods, or services based on those goods.  Every other activity of the economic process, starting with the collection of the resources from the Earth and its environments, occurs only to achieve this outcome.  For an economy to function, the entire economic process must be completed from beginning to end for it to produce the products that pay for it.

This page is linked from:

population growth and economic growth

economic activity

how resources are used in economic activities 

the economic process

measuring an economy

consumption

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