© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 3.11 12.1 Students understand common terms &...

© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 3.11 CONTEMPORARY ECONOMICS: LESSON 3.1

12.1 Students understand common terms & concepts and economics reasoning.

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© SOUTH-WESTERNCONTEMPORARY ECONOMICS: LESSON 3.12

LESSON 3.1

The U.S. Private Sector Describe the evolution of households. Explain the evolution of the firm with

respect to the changes in production processes.

Demonstrate your understanding of why international trade occurs.

Objectives


CHAPTER 3 U.S. Private and Public Sectors

3.13.1 The U.S. Private Sector

3.23.2 Regulating the Private Sector

3.33.3 Public Goods and Externalities

3.43.4 Providing a Safety Net


CHAPTER 3 U.S. Private and Public Sectors Why did households go from self-sufficiency to relying on

markets? How did firms evolve to take advantage of large-scale

production? Why do countries trade? If the “invisible hand” of competitive markets is so great,

why do governments get into the act? Why are some people poor even in the world’s most

productive economy?

Consider


LESSON 3.1

The U.S. Private Sector household utility firm Industrial Revolution

Key Terms


Household


Households

All those who live under one roof are considered part of the same household.

Households make economic choices. What to buy How much to save Where to live Where to work


Evolution of the Household

In 1850, the economy was primarily agricultural (about 2/3 of America’s labor force worked on farms.)

Now only about 2 percent of the U.S. labor force works on farms.


Evolution of the Household (Cont)

In 1950, only about 15 percent of married women with children under 18 years old were in the labor force.

Today more than half of married women with young children are in the labor force.

The rise of two-earner families has reduced the significance of specialization within the household.


Households Maximize Utility

Utility is a level of satisfaction or sense of well-being.

Economists assume that households try to act in their best self-interests by selecting products and services that are intended to make them better off.


In what ways has households evolved over time? Over time, there are more two-earner

households due to the higher education levels among women and the increased demand for labor.

Therefore, there is less production in the home and more purchasing in the market.

Members of many households have moved from working on a farm to working in an office or a factory

Checkpoint: Pg-63


Firms


Firms

A firm is an economic unit formed by a profit-seeking entrepreneur who combines resources to produce goods and services and accepts the risk of profit and loss.


Evolution of the firm Specialization and comparative advantage help explain why households

are no longer self-sufficient. Transaction costs could easily cancel out the efficiency gained from

specialization. It would take too much time to specialize in every task, for example in making a

sweater. Sheep

Wool Yarn knitting


Cottage Industry


Evolution of the firm (cont)

The cottage industry system—an entrepreneur hired households to turn raw material into finished products.


Centrally Planned Factories


The Industrial Revolution

Centrally Powered Factories Promoted more efficient division of labor Allowed for direct supervision of

production Reduced transportation costs Facilitated the use of specialized

machines



Began in Great Britain around 1750 Development of large-scale factory

production



If you made this sweater from scratch what would it be worth? Think about what it cost to produce How much time did you have to invest? How many resources did you have to use? How much are all your specialization skills worth?

How much is this sweater worth?Revenue $ – Cost of Production $ = $ Profit $


How have production processes changed over time? The production process evolved from

self-sufficient rural households to Cottage industry, where specialization occurred in the household. From there the industrial revolution led to factories

Checkpoint Pg. 65


The Rest of the World

The rest of the world affects what U.S. households consume and what U.S. firms produce.

International trade Gains from international trade occur because the

opportunity cost of producing specific goods differ from across countries.


[Insert Figure 3.2 U.S. Production as a Percentage of U.S. Consumption]

U.S. Production as a Percentage of U.S. Consumption

Need to IMPORT

Need to EXPORT


The Rest of the World(Cont)

Trade in raw materials If production falls short of consumption, the

U.S. purchases the difference from other countries.

If production exceeds consumption the U.S. sells the difference to other countries.

The U.S. is a net importer of oil and metals and a net exporter of crops.


Why does international trade occur?

International trade occurs because the opportunity cost of producing specific goods differs across countries.

Checkpoint Pg. 66


Key Concepts

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Assessment


Key Concepts Assessment

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