Barnum and Squire Household Model

Question 1

what is barnum and squire household model for?

Answer 1

provides framework for making predictions about farm household to changes in domestic and market variables

Question 2

when was the model developed

Answer 2

1979

Question 3

strength of the model

Answer 3

ability to generate general equilibrium analysis of wider peasant economy from outcome of peasant decisions in output and input markets

Question 4

weakness of model

Answer 4

assumes competitive markets which many developing countries don’t have access to

Question 5

assumptions of model

Answer 5

1) market for labour
2) land is fixed
3) home activities combined with leisure
4) choice between own consumption and selling output
5) uncertainty is ignored

Question 6

profit effect is transmitted through…

Answer 6

full income variable

Question 7

profit effect will be weak if…

Answer 7

1) profits are only small portion of full income
2) profits are insensitive to changes in product prices
3) consumption of particular commodity is unresponsive to changes in full income

Question 8

what is normal demand theory?

Answer 8

increase in cost decreases demand

Question 9

income effect resolves…

Answer 9

apparent paradox of positive own-price elasticity of demand for farm food and puzzle of slow market responses to food price changes

Question 10

explain barnum-squire graph

Answer 10

• Q - C = marketed supply which is what is released onto the market to sell
• ww’ is the shifted wage line so the relative wage cost of production
• opportunity cost of time given b relative market wage; wage/farm output price
• OW with slope w/p shows rise in total cost of labour as use increases

Question 11

explain barnum-squire graph for a rise in market price of output
- when goods are more expensive so people consume less

Answer 11

• reduces price ratio w/p
• shifted wage cost line shallower
• rise in output to B*
• rise in full income to Q*
• decrease in family farm work and rise in hired labour
• higher income so move to higher indifference curve
• decrease in home consumption to C*
• increase in market sales as Q* - C* > Q - C

Question 12

explain barnum-squire graph for a rise in market price of output
- when goods are more expensive so people earn more to consume more

Answer 12

• wage cost line shallower
• rise in output to B*
• rise in full income to Q*
• decrease in family farm work and rise in hired labour
• higher income so move to higher indifference curve
• increase in home consumption to C*
• fall in market sales

Question 13

explain barnum-squire graph for a rise in wage rate

Answer 13

• increase price ratio w/p
• wage cost line steeper
• fall in output to B*
• fall in full income to Q*
• rise in family farm work and decline in hired labour
• move to lower indifference curve
• increase in home consumption to C*
• fall in market sales as Q* - C* < Q - C