Chapter 3 section 1 Household-the most important economic decision maker, consisting of all those who live under one roof. Demand goods and services, sellers of resources (ex. Resources). Choices include what to buy, how much to save where to live,and where to work.

Households Farmers-grow and kill their food. Sew clothing. Farms –fertilizer are need to grown enough food. Move away from agriculture to factory work. Require growing large amounts of food for the public, or making large amount clothing and other tools for the households. Households-now provide labor to make goods and services. Before it was a one person income per household. At least today, two incomes per household.

Households Less production occurs at home More goods and services are purchased in markets. Reduced household production has led to increase in need/use of child services. Rise in two-earner families has reduced the significance of specialization within the household.

House holds maximizes utility Households- are assumed to pursue their rational self-interest. (they try to act in their best interest by selecting products and services that are intended to make them better off.) Households try to maximize their utility. Utility- their level of satisfaction or sense of well- being. Depends personal goals, not some objective standard.

Firms A firms 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 advantages (household that are no longer self sufficient)

continued Wool sweaters. Sheer sheep (cut the wool of the sheep). Clean and twist the wool into yarn. Yarn is knitted into a sweater. Suppose you went to different people for each transaction. Transaction cost-the cost of time and information required for exchange-could cancel out the efficiency gained from specialization. Sale of the sweater.

continued An entrepreneur by hiring specialist to make many sweater rather than just one, is able to reduce the transaction cost per sweater. 17 th and 18 th century, homemade factories creating wool or cotton products were known as Cottage industries.

The Industrial Revolution Technological developments, water power & steam power. Shift in employment form rural farm to urban factory Large organized factories 1.) promote more efficient division of labor 2.) allowed for the direct supervision of production 3.) reduced transportation cost

continued 4.) facilitated the use of specialized machines far larger than anything that had been used in the home. Industrial Revolution, Great Britain 1750 Profit = Revenue – Cost of Production.