The members of a household or family are not just consuming units. They also own factors of production, or inputs, which they sell to production units. In the typical case, the consumer supplies some inputs to the firm, where the firm may be a private or public enterprise, hospital, government department, or whatever, as long as the unit is engaged in productive activity. The most important input supplied by consumers is labour or effort, and the price per unit at which this labour service is sold is the wage-rate. We can now develop the model of consumer behaviour, presented in Chapters 1–2, to explain how the level of the consumer’s income is determined.
Unable to display preview. Download preview PDF.