The Hindu Business Line : Household economics

Suppose you and your spouse are unemployed. A washing machine may then be a wasteful expenditure, as both of you have enough time to do the household work.

But suppose both of you are gainfully employed. Better still, what if your employers agree to hike your salaries if you spend more time in the office?

It would now be costly to spend more time on household chores, as that would deny you the ability to earn a higher salary. So, washing machine and other consumer durables would seem a great buy.

Of course, we do not apply economic concepts to take decisions. It is just that our behaviour can be explained by these concepts.

Professor Gary Becker with the University of Chicago in fact calls the household a "small factory" because it generates basic goods such as meals, residence and entertainment.

The prices of these goods have two basis components. First, the cost of buying goods directly from the market. And, second, time expenditure. This is essentially the salary you would have earned had you spent that time at work, which is the opportunity cost. As the opportunity cost increases, the ability to spend time on household work reduces.

Gary Becker developed a general theory based on this behaviour in his 1965 paper "The theory of allocation of time". He has also applied economic concepts to explain our decision to marry and have children. He received the Nobel Prize in 1992 for applying economic theory to explain human behaviour.

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