{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

chapter7

chapter7 - Theallocationoftime (Zi)in U=U(Z1,Z2,ZN...

This preview shows pages 1–15. Sign up to view the full content.

Household Production Model I: The allocation of time

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Household production model In the household production model, utility is derived from the activities (Z i ) in which people are engaged. U=U(Z 1 , Z 2 ,…, Z N ) Each final commodity is produced and consumed within the household by combining time and purchased inputs.
Example: college attendance College attendance Requires time as well as purchased inputs (tuition, books, supplies, etc.)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Full cost The full cost of an activity includes the opportunity cost of time as well as the opportunity cost of purchased inputs. Example – college enrollments often increase during recessions due to lower opportunity cost of time.
Assumptions U=U(Z 1 , Z 2 ,…, Z N ) Z i =f i (t i ,x i ) Where: t i = amount of time devoted to producing and consuming commodity i . x i = amount of purchased inputs devoted to producing and consuming commodity i . (This is a composite commodity that is an index of all purchased inputs used in producing final commodities.)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Time constraint
Goods constraint

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Constraints Solving the time constraint for time at work: Substituting this into the goods constraint results in:
Full-income constraint After a little algebraic manipulation, the full income constraint is given by the formula below. The first time is the opportunity cost of goods, the second is the opportunity cost of time.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Full-income constraint (cont.) The full-income constraint may also be expressed as: Where FC i = full cost of Z i :
Applications Individuals are assumed to minimize the full cost of consuming any commodity. This model may explain: the growth of the fast-food industry, why convenience stores can survive while charging higher prices than grocery stores, the decline in fertility, and why many people do not use coupons in grocery stores.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Isoquants This diagram illustrates the possible combinations of time and purchased inputs to provide a given quantity and quality of meals.
Indifference curves / isoquants An isoquant is also an indifference curve since Z i is held constant.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Points on an isoquant At point A, an individual may prepare meals using basic ingredients such as flour, vegetables, meat, etc.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}