1. U.S. Private and Public Sectors
3.1 The U.S. Private Sector
CONTEMPORARY ECONOMICS
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U.S. Private and Public Sectors
3.1 The U.S. Private Sector
3.2 Regulating the Private Sector
3.3 Public Goods and Externalities
3.4 Providing a Safety Net
LESSON 3.1

2. 3.1 The U.S. Private Sector
CONSIDER
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?

3. 3.1 The U.S. Private Sector Objectives
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.

4. household utility firm Industrial Revolution
3.1 The U.S. Private Sector
Key Terms
household
utility
firm
Industrial Revolution

5. 3.1 The U.S. Private Sector
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

6. Evolution of the Household
3.1 The U.S. Private Sector
Evolution of the Household
In 1850, the economy was primarily agricultural.
Now only about 2 percent of the U.S. labor force works on farms.
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.

7. Households Maximize Utility
3.1 The U.S. Private Sector
Households Maximize Utility
Utility is a level of satisfaction or sense of well-being.
Households try to act in their best interests by selecting products and services that are intended to make them better off.

8. 3.1 The U.S. Private Sector
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.

9. 3.1 The U.S. Private Sector
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.
The cottage industry system began when the entrepreneur hired households to turn raw material into finished products.

10. Centrally Powered Factories
3.1 The U.S. Private Sector
Centrally Powered Factories
Promoted more efficient division of labor
Allowed for direct supervision of production
Reduced transportation costs
Facilitated the use of specialized machines

11. The Industrial Revolution
3.1 The U.S. Private Sector
The Industrial Revolution
Began in Great Britain around 1750
Development of large-scale factory production

12. The Rest of the World International trade Trade in raw materials
3.1 The U.S. Private Sector
The Rest of the World
International trade
Trade in raw materials

13. U.S. Production as a Percentage of U.S. Consumption
3.1 The U.S. Private Sector
U.S. Production as a Percentage of U.S. Consumption
If production exceeds consumption, the United States sells the difference to other countries.
If production falls short of consumption, the United States buys the difference from other countries.
Figure 3.2