chapter  7
Pages 20

The distinguishing feature of the development in the theory of consumer choice that is to be examined first in this chapter – the household production function approach – lies in its explicit recognition, following the work of Becker (particularly Decker, 1965), that time is an important input into the consumption process and is also, for many people, a scarce resource. In this development, consumption is viewed as an activity requiring the input of one or a number of goods coupled with the time of the consuming agent. It thus presents, it is claimed, a more realistic model of what happens when ‘goods’ are consumed because, clearly, even a simple activity like drinking a cup of tea requires inputs of tea leaves, hot water, milk and maybe sugar as well, together with the use of assorted containers – teapot, milk jug, cup, etc. – and 10 minutes or so drinking time. Other activities can involve the use of a wider range of goods and considerably more time. Utility is then assumed to be derived from the activity rather than directly from the goods consumed, and to be related to the amount of the various activities undertaken rather than to the quantities of goods. The utility function can thus be written as

U = h(z1, z2, …, zn), (7.1)

where the z terms refer to the quantities of the various activities, such as the number of cups of tea drunk or rounds of golf played. Then, because goods are inputs into the consumption process, an individual’s demand for goods is ultimately determined by the amounts of the various activities he undertakes. Hence, bearing in mind that a good may be used as an input into a variety of activities, we may write the individual’s demand function for any good A as

qA = φ(z1, z2, …, zn), where qA is the quantity of A demanded.