Interdependence between the farm business and the farm household with implications on economic efficiency

Abstract

<p>In no other industry is the interdependence between the consuming household and the business firm so strong as in agriculture. The farm is a complete economic unit by itself. The business and household units are intertwined in the farm with production and consumption taking place in one central spot. Hence limited resources are allocated between the two in accordance with the preferences of the family. The economic problems of a farm exactly parallel those of a national economy and include the three major areas of choice and decision: (1) the allocation of resources or income between current and future consumption, (2) the allocation of limited resources or income in current production and (3) the distribution of current consumption income between different individuals. In reality, the first decision is largely one of allocation in production over time. Problems of production and consumption allocation at the farm level have received little attention in the general body of economic principIes. In general, the economic principles applicable to the business firm have been developed independently of the consumption unit, and the logic of the consuming unit has been developed independently of the business firm. A more realistic approach for agriculture is to consider production and consumption as interdependent units.</p>