The Park Place Economist


Ermich (2008) describes the economics of the family as a way to explain and understand the actions of the family and how they make decisions. One of the microeconomic methods used to explain the family is the human capital theory. Earnings are dependent on human capital investments - the more human capital invested in a person, the higher his earnings will be. The family will make human capital investments in their children, bettering the children later in life by increasing their chances of having higher earnings later in life. Another concept of family economics is that families will allocate the available resources optimally among everyone in the family. Even with efficient resource allocation, after each child is born there will be less and less resources available for the latter child. This applies to the human capital investments; the more children a family has the less human capital investments the parents will be able to make in the additional children.