A household with off-farm wage work and self-employed work, output from self-emp

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A household with off-farm wage work and self-employed work, output from self-employed or farm business sold in the market, i.e., a market oriented household through labor and food market contact. The houscholds is assumed to make decisions by maximizing the utility of its members subject to farm technology, resource constraints, including human time, and market prices for agricultural output, off- farm work, and other purchased goods. The household obtains utility from a good purchased in the market (a) and from leisure (L) and has taste parameter r. For each period, the household has a time endowment T and allocates it to leisure (L), self-employed (farm work) work (H), and off-farm wage work (H) U U(X,L,r) a strictly concave function (2) T = L + H,+H2, The household has a self-employed or a farm that produces Q and for simplicity to have one variable input , family labor, and other inputs are represented by R , which is fixed. The marginal product of H, is positive but diminishing as H, increases. The household has a cash income constraint, receiving non-farm non-labor income of V, eamings from off-farm wage work of WH2 , sale of farm output P0 but reduced by the fixed costs (C)of acquiring access to land, seeds, fertilizer, and machinery or animals before actual production of Q starts. This net cash income (D is spent on the consumption good X. No saving is included in this one-period model. The off-farm wage rate is W, the price of O is Po, and price of the purchased consumption good is Pr These prices are fixed in the market and to the household in its decision-making. quation (2) can be solved for H,-T-L-H and substitute it for H, in equation (4). We also ubstitution equation (3) for Q in equation (4) to obtain the household full-income (Becker 1965) and echnology constraint: he full-income available for spending is the set of terms between the two equality signs in (5), it is spent n the two consumption goods, X and L With an interior decision-making solution (where H, and H, are positive), we obtain the following st order condition by maximizing equation (1) subject to (5):

Explanation / Answer

2. Economic wants are greater than economic means or incomes

Economic problem is the problem of scarcity in which human wants are unlimited and resources are scarce.

3. 8 apples or 16 bananas

Budget line: 1.5A + 0.75B = 12

When Quantity of Apple, A = 0 then maximum quantity of Banana, B = 12/0.75 = 16

When B = 0 then, maximum quantity of A = 12/1.5 = 8

4. Quantities of the two products that a nation can produce

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