Chapter 3 outline - 14:27 Chapter3: 31TheHousehold a o o...

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14:27 Chapter 3: Economic Decision Makers 3-1 The Household a. The evolution of the household o The early households produced what they consumed and  consumed what they produced o The rise of two-earner households has affected the family as an  economic unit Households produce less for themselves and demand more  from the market b. Households maximize utility o All those who live together under one roof are considered part of the  same household Economists assume that people try to maximize their level of satisfaction, sense of  well-being, happiness, and overall welfare. In short, households attempt to maximize utility. Households are viewed as rational, meaning that they try to act in their best interests  and do not deliberately try to make themselves less happy c. Households as resource suppliers o Households use their limited resources in an attempt to satisfy their  unlimited wants. They can use these resources to produce goods and  services in their homes. They can also sell these resources in the resource market and use the income to buy  goods and services in the product market, The most valuable resource sold by most households is labor Two-thirds of personal income in the United States comes from labor earnings rather  than from the ownership of other resources such as capital or natural resources The government gives some households transfer payments, which are outright  grants Cash transfers are monetary payments, such as welfare benefits, social security,  unemployment compensation, and disability benefits. d. Households as demanders of goods and services
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o Personal consumption is sorted into three spending categories: Durable goods That is, goods expected to last three or more years— such as an automobile or a refrigerator Nondurable goods Such as food, clothing, and gasoline Services Such as haircuts, air travel, and medical care 3-2: The Firm a. The evolution of the firm o Specialization and comparative advantage explain why households  are no longer self-sufficient o An entrepreneur, by contracting for many products rather than just  one, is able to reduce the transaction costs per product o Work became organized in large, centrally powered factories that Promoted a more efficient division of labor Allowed for the direct supervision of production Reduced transportation costs
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