Peasant households still play a significant role in terms of production and factor supply in most developing countries. Nevertheless, these households consume a considerable proportion of what they produce supplying only a small part, if any, to the market. These roles of peasant households as producers (both for own consumption and for sale), suppliers of factors (both for household and non-household enterprises), and consumers (of own produced and marketed commodities) are shown using a conceptual framework. Later, using a district level panel data derived principally from series of agricultural sample surveys in Ethiopia, a typical peasant economy, this article examines the utilization of cereal production by farming households and identifies factors that influence the allocation of output to alternative uses (home consumption and market supply). The descriptive analysis shows that farming households in Ethiopia consume at home 67 percent of their cereal production, marketing only 15 percent, with great disparity across administrative zones. On the other hand, the panel data model adapted indicates that the size of farming population, agricultural land availability, road density, urbanization, and livestock capital significantly affect the share of output consumed at home, while farming population, road density, urbanization, and livestock capital are strong predictors of the proportion of output supplied to the market.