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A snapshot of the summary - Rural Households and Livelihood Strategies
Introduction - Rural Household Economics - Farm Production
In what sense is a household different from a family?A household is different from a family because in a family there are people who are tied to each other by blood. A servant can be part of the household, but not part of the family.
How can we define imperfect markets?Markets where conditions for perfect competition are not satisfied
What are the 4 characteristics of perfect competition?
- Many buyers and sellers (no single actor can influence the price)
- Market information is freely available
- Freedom of entry and exit
- Price mechanism ensures equilibrium of demand and supply
What are incomplete markets?Markets which function sporadically and in a disconnected way across space and time
What are the three basic assumptions (in farm household economics):
- Farm household is decision maker (no dissent among members)
- Goal of farm household is (short-term) profit maximization
- Perfect competition in markets for inputs and outputs (hence, the producer has no influence on the prices of inputs or outputs)
What is the law of diminishing marginal returns?Amount of additional output declines when the amount of an input continues to increase with a given (small) amount. Hence, shape of TPP-curve is concave. Basic assumption, reflects relationship between one input and the output, use of other inputs remains constant
What are the six characteristics of peasants?
•Live mainly from agriculture (incl. pastoralism, fishery, forestry)
•Use mainly family laborin production (little or no hired labor)
•Partially integrated into markets (some home consumption of output & some self-provision of inputs – labor, seeds, manure)
•Participate in markets that are notably imperfect (high transaction costs, lack of competitiveness)
•Are members of communities (→ access to common property resources, mutual insurance, provision of local public goods, voice in political affairs) that can assist / deter development Belong to a larger society dominated by other social classes (hence, unequal economic and political power relationships)
Farm households (peasants) are....Characterized by partial engagement in markets
- Produce (part of) the food they consume themselves
- Use their own family labour (and some hired labour?) for production
Supply and price band model
What are the four characteristics of the standard micro-economic theory?
- Production theory (based on profit maximisation)
- Consumption theory (based on utility maximization)
- Supply and demand (derived from profit and utility maximization); meet at perfect markets; market prices equilibrate supply and demand
- Decisions taken by different actors (producers, consumers)
What are three characteristics of the price bands and supply responses?
- Transaction costs create a price band between the effective sales price and the effective purchase price
- Whenever the shadow price of a product or factor falls within the price band, buying nor selling will occur; the household will be self-sufficient in the product or factor
- The larger the transaction costs involved in using a market for farm households, the more households are likely to be self-sufficient