1. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 1 U.S. Private and Public Sectors 3 3.1The U.S. Private Sector 3.2Regulating the Private Sector 3.3Public Goods and Externalities 3.4Providing a Safety Net

2. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 2 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

3. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1The 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

4. CONTEMPORARY ECONOMICS© Thomson South-Western  household  utility  firm  Industrial Revolution Key Terms 3.1The U.S. Private Sector

5. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 5 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. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 6 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. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 7 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. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 8 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. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 9 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. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 10 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. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 11 The Industrial Revolution Began in Great Britain around 1750 Development of large-scale factory production

12. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 12 The Rest of the World International trade Trade in raw materials

13. CONTEMPORARY ECONOMICS© Thomson South-Western 3.1 The U.S. Private Sector SLIDE 13 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