Households must make three basic decisions:
- How much of each product or service to demand.
- How much labor to supply
- How much to spend today and how much to save for the future
The options available to households are determined by prices, income and accumulated wealth. These factors set the budget constraint.
Households choose between available options based on preferences, tastes and expectations about the future.
In Household Demand we explain how these decisions are made in more detail.
Households have to choose between work and leisure/non-work. The price (opportunity cost) of leisure equals your wage rate. In other words, if your wage goes up, so does you cost of leisure. Read more about it in Household Labor Supply.
Saving v.s. Borrowing
Households are the suppliers of capital in the economy, while companies demand capital to invest in their businesses. Economic growth is constraints by the savings rates of households.
Households tend to save more when interest rates are high and save less when interest rates are low.
Read more about it in Saving and Borrowing
Karl E. Case, Ray C.Fair, Principles of economics. Seventh Edition, Pearson Prentice Hall, 2004, Chapter 5