Standard Address

1. 12.1 Students understand common terms & concepts and economics reasoning. Standard Address 1 CONTEMPORARY ECONOMICS: LESSON 3.1 CONTEMPORARY ECONOMICS: LESSON 3.1

2. Objectives 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. CONTEMPORARY ECONOMICS: LESSON 3.1

3. CHAPTER 3U.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 CONTEMPORARY ECONOMICS: LESSON 3.1

4. Consider CHAPTER 3U.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? CONTEMPORARY ECONOMICS: LESSON 3.1

5. Key Terms LESSON 3.1 The U.S. Private Sector household utility firm Industrial Revolution CONTEMPORARY ECONOMICS: LESSON 3.1

6. Household CONTEMPORARY ECONOMICS: LESSON 3.1

7. 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 CONTEMPORARY ECONOMICS: LESSON 3.1

8. 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. CONTEMPORARY ECONOMICS: LESSON 3.1

9. 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. CONTEMPORARY ECONOMICS: LESSON 3.1

10. Households Maximize Utility • Utilityis 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. CONTEMPORARY ECONOMICS: LESSON 3.1

11. Checkpoint: Pg-63 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 CONTEMPORARY ECONOMICS: LESSON 3.1

12. Firms CONTEMPORARY ECONOMICS: LESSON 3.1

13. 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. CONTEMPORARY ECONOMICS: LESSON 3.1

14. 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 CONTEMPORARY ECONOMICS: LESSON 3.1

15. Cottage Industry CONTEMPORARY ECONOMICS: LESSON 3.1

16. Evolution of the firm (cont) • The cottage industry system—an entrepreneur hired households to turn raw material into finished products. CONTEMPORARY ECONOMICS: LESSON 3.1

17. Centrally Planned Factories CONTEMPORARY ECONOMICS: LESSON 3.1

18. 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 CONTEMPORARY ECONOMICS: LESSON 3.1

19. The Industrial Revolution • Began in Great Britain around 1750 • Development of large-scale factory production CONTEMPORARY ECONOMICS: LESSON 3.1

20. The Industrial Revolution • 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 $ CONTEMPORARY ECONOMICS: LESSON 3.1

21. CONTEMPORARY ECONOMICS: LESSON 3.1

22. Checkpoint Pg. 65 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 CONTEMPORARY ECONOMICS: LESSON 3.1

23. 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. CONTEMPORARY ECONOMICS: LESSON 3.1

24. U.S. Production as a Percentage of U.S. Consumption Need to IMPORT Need to EXPORT • [Insert Figure 3.2 U.S. Production as a Percentage of U.S. Consumption] CONTEMPORARY ECONOMICS: LESSON 3.1

25. 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. CONTEMPORARY ECONOMICS: LESSON 3.1

26. Checkpoint Pg. 66 Why does international trade occur? International trade occurs because the opportunity cost of producing specific goods differs across countries. CONTEMPORARY ECONOMICS: LESSON 3.1

27. Assessment Key Concepts #1. #2. #3. #4. CONTEMPORARY ECONOMICS: LESSON 3.1

28. Assessment Key Concepts CONTEMPORARY ECONOMICS: LESSON 3.1