Household theory

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The household theory is a basic theory of microeconomics within the economics . It examines the economic decisions of (private) households. The consumption decisions are made on the basis of the optimal consumption bundle, which is reflected in the household optimum . 

The household

A household consists of one or more natural persons who together draw up a business plan. It compares the total planned income and expenditure. In addition, a household only produces goods for its own consumption. One speaks of a household only when all three properties are fulfilled. This distinguishes him from other economic agents.

The family is a typical example of a household. This household consists of several people who draw up a joint business plan. In addition, they do not produce goods or services for the market , but rather for their own use, for example educational or catering services. A household is described in household theory as a unit that makes consumption decisions according to their common preference structure as an economic subject. A distinction is also made between private households and public households . Household theory, however, deals with the economic decisions of private households.

Basic assumptions

Satisfaction of needs

The considerations of household theory are based on the fact that all needs (material as well as immaterial) are satisfied in a household. The satisfaction of needs is the real purpose of any economic activity. The goal of a household is to maximize its individual utility . The benefit is to be understood as a measure of the satisfaction a household experiences as a result of its consumption decision. The household therefore makes its decisions under the given conditions in such a way that it achieves the highest possible economic welfare .

preferences

The prerequisite for maximizing the utility of a household is that it is clear about a ranking of its needs. This subjective appreciation is reflected by the households through a so-called order of preference , which means that certain goods are assigned a higher benefit than others. Combinations of several goods can also provide greater benefits than others in terms of their preference. The households decide on their preference order based on their own needs and thus independently of other households. The relationship between the amount of goods consumed and their benefits can be represented by the utility function . The relationship between the composition of various bundles of goods and their subjective perception of use is shown on indifference curves . Here, the household strives for the highest possible level of benefit.

Rational behavior

Household theory assumes that the household acts according to the principle of rationality. Every household tries to maximize the satisfaction of its needs, i.e. its self-interest caused by the consumption of goods, within the budget available to it. The possibilities for consumption that the household has are on and below the so-called budget line . It is assumed that the household behaves rationally according to the economic principle . The household thus strives for the highest possible level of utility that it can achieve with the given prices of goods and incomes. This principle is called the maximum principle .

In addition, it is assumed that the majority of households have no influence on market prices through their individual requests or offers. This means that households are volume adjusters .

Consumer sovereignty

A basic assumption of household theory is consumer sovereignty . In a narrower sense, this means that the household, in accordance with its order of preferences, and with the resources available to it, freely decides in what quantities to consume the private goods offered. In a broader sense, consumer sovereignty is understood to mean that the production of private goods, which is coordinated by the market process, and the provision of public goods, in the best case, are based on the preference structures of households.

Decisions under security / uncertainty

According to the neoclassical theory , the preceding assumptions are based on the fact that the household has complete information in the decision-making process and makes its decisions safely. In the long term, however, the household makes decisions under uncertainty due to incomplete information . For this, the expected utility theory provides an explanation or a solution. The assumption of complete information is legitimate in order to reduce the complexity of the economic decision-making situation and thus to identify relevant influencing factors.

Household demand

The household decides how its income is used in the form of consumption and savings.

Demand functions

In economics, the individual demand function and the aggregate demand function , i.e. H. the market demand differed from each other. The market demand is the aggregation of the individual demand functions of the individual market participants.

There are also special demand functions that are income-dependent. These are the income-consumption curve and the angel curves . There is an abnormal demand reaction for inferior goods . Other special demand curves change when prices change. These include the price-consumption curve, the Marshallian demand curve and the cross -demand curve . The income and substitution effect has a further influence on the demand function .

The price elasticity of demand indicates how elastic / inelastic a demand curve is. It says by how many percent the amount of demand would decrease / increase with a price increase / decrease of 1%.

Decreasing marginal utility

In order to maximize the utility of a household, Gossen's first law must be met. This means that the marginal utility of a good decreases as the amount consumed increases. The increase in benefit per additional unit is therefore decreasing. The total utility of a household is maximized in the saturation set , that is, so many units are consumed until the marginal utility is zero.

Optimal consumption plan

As already mentioned in the previous section "rational behavior", the rational household acts according to the maximum principle. He chooses that bundle of consumer goods for which the given budget line touches the highest possible indifference curve. This point is called the optimal consumption plan; H. described as a household optimum . The marginal rate of substitution describes the willingness of a consumer to exchange one good for the other. This is equal to the slope of the indifference curve. In addition, Gossen's second law must be fulfilled in the household optimum . This means that the income is divided between the purchase of both goods in such a way that the same benefit is achieved for the last cent spent on good 1 or good 2.

For the formal determination of the household optimum, the Lagrange function is used in microeconomics . Here the objective function is maximized as a utility function under the secondary condition of the budget restriction .

The household offer

Since households are seen as consuming economic agents, it is often forgotten that households offer production factors in order to generate income. On the factor markets , the household thus offers the production factors labor and capital . The decisions about the labor and capital supply are made under the premise of maximizing utility.

Job offer

The household decides on its job offer , d. H. What proportions he divides his available time of day into work and leisure. This division determines how much income this household generates.

Capital supply

The household can also decide how it would like to distribute its wealth among different investment opportunities so that it generates property income. Thus, he essentially decides between present and future consumption, i. H. between consumption and saving.

Supply and demand decisions by the household are usually mutually dependent because they influence the budget available to it.

Other decisions

The household theory described in the previous chapters only refers to the decisions made by households in classical economics . However, in addition to making decisions about its supply of production factors and the demand for consumer goods, the household also makes other decisions about the use of scarce resources . These include, for example, the decisions about partner and career choice, number of children or the area of ​​residence. These can be explained by the assumption of rationality.

The big difference between the decisions of a household in the classical household theory and the other decisions is that it is more difficult to measure the expected income in other decisions. An example of this is satisfaction or quality of life.

The intertemporal theory of the household

The consumption time

In the older household theory it was assumed that there are no time restrictions for the consumption of goods. This was refuted by Gary Becker . The optimal combinations of quantities of goods and their consumption times result in a consumption performance with the aid of which the needs can be satisfied. The utility function is therefore dependent on the consumption power. For example, the need to travel requires consumption services in the form of transport and accommodation services as well as travel time .

Demand-side balance

Taking into account the time component, the household could wish for consumption to deviate from income over a certain period of time. In this case, positive savings arise, i.e. H. more income is generated than expenditure is generated or vice versa. If the household assets do not rise / fall as a result of these positive / negative savings, then one speaks of a capital supply in the case of positive savings and a demand for capital by the household in the case of negative savings .

Supply-side balance

When deciding on the labor supply, in addition to the allocation of goods , one speaks of a time allocation, as the household has the option of making its income variable over a period of several periods. In the present, he could therefore offer less work and thus generate a lower income, since he increases his qualifications through training or education in order to earn a higher income in the future.

criticism

Demand interdependencies

Contrary to what is assumed in the assumptions of household theory, the benefits and thus also the demand of a household also depend on the demand of other households. Thus, one can speak of interdependencies between different households in their consumption decisions. The influences of other households are called external demand or consumption effects. A distinction is made between the following external effects :

Criticism of basic assumptions

What is criticized in household theory is the requirement of complete information about goods and prices, the weighing up of all alternatives, and that households always make their decisions rationally, since the transaction costs for obtaining this information are not taken into account. (see chapter 2.4 Decisions uncertainty / security)

The assumption of consumer sovereignty is violated as soon as the household does not receive the amount that it asks for in its optimal consumption plan according to its preference structure at a given market price. This could be due to quantity rationing or waiting times. Interdependencies in demand or modern sales techniques, especially advertising, also influence the preference order of a household. This creates artificial needs in addition to the real needs that have already been met. Thus the household would no longer decide freely. However, these needs need not be perceived as less urgent than the ordinary needs as soon as the household takes them into account in its order of preference. Thus, the consumer still decides confidently when it comes to satisfying their needs.

Condorcet paradox

The voting paradox describes the problem of cyclical majorities in majority decisions. The paradox here is that the voting result of the collective preferences is cyclical, ie the decision result is not transitive , although the household preferences of the individuals are transitory.

The goods properties

Kelvin Lancaster criticizes that through the utility function of a household, as it is considered in household theory, the utility is immediately donated through the consumption of the goods. According to him, however, the benefit should be determined by the properties of a good. Households can only indirectly obtain information about the characteristics of the good by purchasing it. Properties can be, for example, calories or ingredients. 

literature

  • Robert S. Pindyck, Daniel L. Rubinfeld: Microeconomics, 5th updated edition, Pearson Studium, Munich et al. 2003, ISBN 3-8273-7025-6 .
  • Harald Wiese: Microeconomics. 4th, revised edition. Springer, Berlin et al. 2005, ISBN 3-540-24203-1 .
  • Sibylle Brunner, Karl Kehrle: Volkswirtschaftslehre , 3rd revised and updated edition, Verlag Franz Vahlen, Munich 2014, ISBN 978-3-8006-4769-9 .
  • Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Basics of the microeconomic theory , 8th revised edition, Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 .
  • Alfred Endres, Jörn Martiensen: Microeconomics , Verlag W. Kohlhammer GmbH, Stuttgart 2007, ISBN 978-3-17-019778-7 .

Individual evidence

  1. ^ A b c Alfred Endres, Jörn Martiensen: Microeconomics . W. Kohlhammer, Stuttgart 2007, ISBN 978-3-17-019778-7 , pp. 41 .
  2. ↑ a b c d Sibylle Brunner, Karl Kehrle: Economics . 3. Edition. Franz Vahlen GmbH, Munich 2014, ISBN 978-3-8006-4769-9 , p. 176 .
  3. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 47 .
  4. ↑ a b c d Sibylle Brunner, Karl Kehrle: Economics . 3. Edition. Franz Vahlen GmbH, Munich 2014, ISBN 978-3-8006-4769-9 , p. 177 .
  5. ↑ a b c d Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 14-17 .
  6. ↑ a b c Sibylle Brunner, Karl Kehrle: Economics . 3. Edition. Franz Vahlen GmbH, Munich 2014, ISBN 978-3-8006-4769-9 , p. 178-179 .
  7. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 47-49 .
  8. ^ Sibylle Brunner, Karl Kehrle: Economics . 3. Edition. Franz Vahlen GmbH, Munich 2014, ISBN 978-3-8006-4769-9 , p. 211-213 .
  9. ^ Sibylle Brunner, Karl Kehrle: Economics . 3. Edition. Franz Vahlen GmbH, Munich 2014, ISBN 978-3-8006-4769-9 , p. 199-210 .
  10. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 68-77 .
  11. ↑ a b c d Sibylle Brunner, Karl Kehrle: Economics . 3. Edition. Franz Vahlen GmbH, Munich 2014, ISBN 978-3-8006-4769-9 , p. 180−198 .
  12. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 109.116 .
  13. ^ Alfred Endres, Jörn Martiensen: Microeconomics . W. Kohlhammer, Stuttgart 2007, ISBN 978-3-17-019778-7 , pp. 183 .
  14. ^ A b Alfred Endres, Jörn Martiensen: Microeconomics . W. Kohlhammer GmbH, Stuttgart 2007, ISBN 978-3-17-019778-7 , p. 194-197 .
  15. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer-Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 92−94 .
  16. ↑ a b Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer-Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 117-126 .
  17. ^ Alfred Endres, Jörn Martiensen: Microeconomics . W. Kohlhammer GmbH, Stuttgart 2007, ISBN 978-3-17-019778-7 , p. 168-176 .
  18. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 97-101 .
  19. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer-Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 104-109 .
  20. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer-Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 101-103 .
  21. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer-Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 88-90 .
  22. ↑ Jochen Schumann, Ulrich Meyer, Wolfgang Ströbele: Fundamentals of the microeconomic theory . 8th edition. Springer-Verlag, Berlin / Heidelberg 2007, ISBN 978-3-540-70925-1 , p. 90-92 .