Households and firms

‘Households and firms’ assesses the economics of smaller institutions. The household is perhaps the smallest institutional unit, defined by families sharing food. Parents wish to promote household well-being. To do this they need mechanisms of insurance and finance. This allows them to take larger risks, and to smooth expenditure over time. The scarcity of these institutions in less developed countries prevents them from developing economically. Firms are institutions which exist to produce goods and services for the market. When a firm wishes to grow it needs to make large investments. Issuing shares to the public spreads the risk of this investment.