FMSC 290 Study Guide - Midterm Guide: Comparative Advantage, Public Good, Opportunity Cost
1 May 2018
School
Department
Course
Professor
Reading week 3-4: the family as an economic unit- theoretical perspectives:
• The neoclassical analysis of the family relies on the following basic underlining
assumption: the family is a unit whose adult members make informed and rational decision
that result in maximizing the utility or well-being of the unit
• Simplest theory
o Utility, select combination of commodities from which its members derive the
greats possible amount of utility
• Comparative advantage: one partner must be relatively better in household production
compared to market work than is the other partner, and vice versa
o Opportunity cost is in the heart of this
• Absolute advantage: that the individual can produce more total output of a good in a given
period
• Couples can specialize in one because they have the greater advantage
• Economies of scale: when an increase in the sale of operation of a productive unit can
result in increased output at decreasing per unit cost
o For example, buying one house for two is cheaper than buying two separately
• Public good: the consumption or enjoyment of the item by one person does not diminish
the consumption of enjoyment of the same item by others
o One partner getting enjoyment from a tv show is unlikely to be reduced by the fact
that the other partner is also watching
• Externalities in consumption: occur when the consumption of a good or service by one
of the partner affects the well-being of the other who does not consume it
o Can be both negative or positive
• Marriage specific investments: refer to the skills and knowledge developed in marriage
and other investments made during a marriage that are worth more within the marriage
than they would be if the marriage were terminated
o Learning to cook each other’s favorite meal
o Probably the most common/prime- having children
• the transaction cost approach: focuses on the role of institutions in structuring complex,
long term relationships as to minimize transaction costs
• bargaining models: allow for husbands and wives to have different preferences, with
outcomes determined through a process of bargaining
• threat point: the level of well-being that each would attain if the couple cannot reach
agreement within the marriage
• divorce threat bargaining models: the threat point depends on the well-being of each
individual if the marriage were to end
find more resources at oneclass.com
find more resources at oneclass.com
