The Behavioral Transformation of Producer-Consumer Households through the Development of Competitive Markets

Abstract

In the first place how does a producer-consumer household allocate its factors of production among alternative uses in autarky? All of its endowment of capital service will be employed in its family firm. Then, how will its endowment of time be allocated between leisure and work? Since no formal markets are available, no prices nor rates are available to help it allocate its endowments. Hence, a set of price and rates need to be formed for these purposes within the household, which proves to be possible since there are alternative uses for its limited endowments of time and capital service. Actually, the household itself constitutes a set of related markets for its factors of production and for the output of its family firm, so that a set of “informal or internal price and rates” (Sonoda and Maruyama, 1999) can be formed to equilibrate all the related internal markets for them. As family members increase or as the technological level of its family firm advances, demands for its factors of production and for the output of its family firm will be changed, which in turn will necessitate it to form a new set of “internal price and rates” to help it allocate them in accordance with the changes in demand. Thus, it undergoes a “revolution in the microeconomic analysis for individual units” in determining the internal price and rates as well as the quantities of factors and output demanded or supplied given the internal price and rates it forms on its own.