BORIS V. KORNEICHUK
THE TRANSFORMATIONAL MODELS OF CONSUMPTION AND PRODUCTION: TOWARDS AN INSTITUTIONAL MICROECONOMICS

Glossary

Adjusted wage rate The ratio of monetary wage rate to the rate of the working routine. This measure describes total remuneration that is received by a worker in an hour of work and determined by monetary payment level as well as by the degree of creative sapidity (richness) of labor.

Consumer’s target isoquant A variety of bundles “time of wait — spending of money”, each of which is able to provide a given target achievement. It is meant that the consumer is able to attain his/her objective by using two resources: time and money. Is we assume that the consumer has an opportunity to reduce time of wait by one hour by paying a fixed “cost of wait”, then the consumer’s target isoquant represents a rectilinear segment. By its absolute value, the slope ratio of this segment to the “time of wait” axis equals cost of wait.

Creative labor supply function The dependence of the quantity of labor supplied on the rate of richness of labor while the wage rate is held constant. If the rate of richness of labor is equal to zero, this function value amounts to labor supply in the traditional model. As the rate of richness of labor increases, the creative labor supply function increases too, right up to reach its maximum possible level, and then invariably rests on this level.

Dual consumption models Two models in which constraining and objective parameters of consumption trade places. The traditional model of consumption and the transformational model of target consumption are dual one in respect to another. In the first model the consumer’s target is to maximize utility, and the constraining (given) parameter is the quantity of financial resource (budget) used. In the second model the consumer’s goal is to minimize the quantity of resource used (to minimize irksomeness), while the constraining parameter is a given utility level.

Dual production models Two models in which constraining and criterion parameters of production trade places. The traditional model of production and the transformational model of target production are dual one in respect to another. In the first model the producer’s target is to maximize product output, and the constraining (given) parameter is the quantity of input (costs) used. In the second model the producer’s goal is to minimize the quantity of input used (to minimize costs), while the constraining parameter is a given output level (or another productive objective).

Entrepreneur equilibrium A situation when his/her utility function defined for a variety of bundles “consumption-savings” reaches its maximum level subject to the given value of profit. In other words, an optimal profit division into two parts — consumption and savings — is obtained.

Equilibrium output curve In the transformational model of the firm this curve reflects the dependence of the firm’s equilibrium output on the initial output. The curve consists of three rectilinear parts: two horizontal segments and a sloping one: the equilibrium output does not change as the initial output increases up to its first threshold value and as it decreases up to its second threshold value, while between the two indicated values the equilibrium output is equal to the initial value.

Inertial models of production Models which allow for transformational costs determined by the following productive parameters deviating from their initial values: staff number, product output level, its price, etc. For instance, hiring and firing costs describe sluggishness of human factor of production. In the traditional production models it is implicitly assumed that changes in productive parameters are made without any additional costs, i.e. these models do not take into account inertial factors of production.
Inertial production model, one-factor Model taking into account a single type of transformational costs — hiring-firing costs.
Inertial production model, two-factor Model taking into account two kinds of transformational costs: hiring-firing costs and the costs of changing output level. The former describe sluggishness of human factor, while the latter characterize technological factor of production.

Labor usage intensity The number of staff employed in a unit of time. It equals total quantity of labor input divided by the production run. It serves as one of the arguments of the modified production function.

Marginal utility of consumption An increment of utility obtained by entrepreneur from increasing consumption by one additional dollar. The function of marginal utility of consumption is a partial derivative of entrepreneur’s utility function with respect to the quantity consumed.

Marginal utility of savings An increment of utility obtained by entrepreneur from increasing savings amount by one dollar. The function of marginal utility of savings is a partial derivative of entrepreneur’s utility function with respect to the quantity saved.
Marginal physical product of labor in dynamics Additional quantity of output that can be obtained by increasing the production run by a unit while holding staffing level constant. The function of marginal physical product of labor in dynamics is a partial derivative of modified production function with respect to the production run duration.

Marginal physical product of labor in statics Additional quantity of output that can be obtained by employing one additional worker while holding the production run constant. The function of marginal physical product of labor in statics is a partial derivative of modified production function with respect to the staff number.

Modified production function The dependence of the product output on production period and labor usage intensity. Isoquants of the modified production function are typically those of downward-sloping shape.

Modified utility function The dependence of utility on wait duration and the quantity of the product consumed. Marginal irksomeness of wait is equal to the increment of utility resulting from a unitary increase in wait duration. As the marginal irksomeness of the wait is negative, indifference curves of the modified utility function are those of increasing type.

Producer’s target isoquant A variety of labor-capital bundles, each of which is able to provide a given productive target achievement. In the transformational model of target production, the target isoquant plays a role similar to that of production function in the traditional production model.

Production run A time span during which inputs are used and a product is made. It amounts to total quantity of labor input divided by labor usage intensity. It serves as one of the arguments of modified production function.

Production variant A set of two parameters: input intensity and a production run. The first parameter times the second one yield total input. In the traditional models of production the concept of production variant is not considered, since any quantity of input is associated with a single value of production function. In the transformational models of production, for the same total input there can be different levels of product output, depending on the production variant having been actualized.

Quasi-classical production function A modified production function taking on the same values whenever total quantity of labor input rests the same, and at the same time remaining a function of two independent variables: production run and labor usage intensity.

Quasi-linear production model A transformational model of production built up on the basis of L. Kantorovich linear production model by means of incorporating thereinto the assumption that there exist transformational costs of changing quantity of product output. The producer’s objective in this model is to maximize net revenue equal to the difference between the market value of the goods produced and total transformational costs. Contour lines, or isoquants of the producer’s objective function, represent kinked curves.

Rate of richness of labor A proportion of creative components in overall labor hours of the person employed. Together with the rate of working routine the rate of richness of labor add up to unity.

Rate of working routine A proportion of simple (non-creative) components in overall labor hours of the person employed. Together with the rate of richness of labor the rate of working routine add up to unity.

Threshold values of output Two values of a firm’s initial output between which equilibrium output coincides with the initial one. When the initial output level is lower than the first threshold value, the equilibrium output level is steadily equal to the first threshold value. When the initial output level is higher than the second threshold value, the equilibrium output level is steadily equal to the second threshold value.

Traditional (static) model Microeconomic model that does not allow for the impact of transformational factors, i.e. does not look at initial values of economic indicators, does not investigate the process of their changes taking place while an object being modeled is going into equilibrium condition. It is assumed that such a transition occurs just once, instantly and without any additional costs.

Transformation A purposive change in the state of economic object. Transformation is treated not as a resuming cyclic process which is under way in invariable conditions, but as a one-time act accomplished in concrete specific conditions. A major particular case of transformation is personal development in the course of purposive creative activity.

Transformational costs of changing output level These are expenditures for readjusting equipment, installing new machine tools and dismantling the old ones in process of changing a producer’s state. These costs characterize sluggishness of technological factor of production.
Transformational costs of changing price These include the costs of changing price tickets, making alterations in financial documents, etc., as well as a loss of the firm’s revenue associated with consumers’ adverse reaction triggered by the fact of the price increase itself. These costs characterize sluggishness of market factor of production.
Transformational curve of demand for product A curve of consumer’s demand for a product in transformational models taking into account logistic or informational factors of consumption. Its main distinction from traditional curve of demand is that it has a sluggishness segment along which demand is perfectly inelastic.

Transformational factor Economic phenomenon influencing the process of changing in the state of some microeconomic object: consumer, producer, firm, or entrepreneur.

Transformational factor of consumption, creative An individual’s quest to maximize the time of creative activity and minimize the time of routine activity (wait). It is also described as a factor of expectation (of wait). In a number of models, the degree of its influence is determined by irksomeness of the wait. The factor is taken into account in the models interpreting consumption as “creative consumption”.

Transformational factor of consumption, informational An individual’s perception of irksomeness of measuring utility as he/she is going into equilibrium state. The degree of its influence is determined by the level of irksomeness of measuring utility. If the individual has earlier experienced consuming the given amount of a product, the respective irksomeness of measuring utility is equal to zero. The factor is taken into account in the models interpreting utility as “emotional utility”.

Transformational factor of consumption, logistic An individual’s perception of irksomeness of changing a product stock as he/she is going into equilibrium state. The degree of its influence is determined by the level of irksomeness of changing the stock of the product. If the equilibrium product stock coincides with the initial one, then the irksomeness of the product stock change is equal to zero. The factor is taken into account in the models interpreting utility as “rational utility”.

Transformational factor of production, inertial It is a necessity to incur transformational costs when changing a producer’s state. The degree of its influence is determined by the level of transformational costs. Basic kinds of transformational costs are the following: hiring-firing costs, the costs of changing output level, the costs of changing price.

Transformational factor of production, variable The factor is defined as a producer’s freedom in choosing one or another production variant, i.e. determining values of two parameters: production run and labor usage intensity. The nature of its influence is determined by the form of modified production function.

Transformational hiring-firing costs These are expenditures for hiring new employees and firing old ones in process of changing a producer’s state. These costs characterize sluggishness of human factor of production.

Transformational labor demand curve It is a curve of a producer’s demand for labor considered in the models allowing for transformational costs. Its main distinction from traditional curve of demand for labor is that it has a sluggishness segment along which demand is perfectly inelastic. The higher are transformational costs, the longer is the sluggishness segment.

Transformational model Microeconomic model derived from a traditional model by means of introducing additional assumptions referring to the effect of one or another transformational factor.

Transformational production function It expresses the dependence of the product output on the initial and current staff numbers. It equals the difference between static production function and personnel hiring-firing costs.

Wait A general term used to denote lower kinds of human activity. Time of wait includes the time of sleep, simple labor, illness, dawdling as well as the time spent in transport, the time wasted while queuing up and the like. Wait opposes creative activity, it is a bad. Wait duration serves as one of the arguments of modified utility function.