1 Overview The Classification of Economic Activity and Economies Primary Activities: Agriculture Other Primary Activities Trade in Primary Products

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Overview

The Classification of Economic Activity and Economies

Primary Activities: AgricultureOther Primary ActivitiesTrade in Primary Products

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Economic decisions …

Economic decisions may be constrained byCultural considerationsLevels of technological developmentPolitical decisions

Categories of ActivityTypes of Economic Systems

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Economic Systems

Subsistence economyLimited need for markets

Commercial economiesMarket economies

Supply and demand

Planned economiesThe old Soviet style

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Supply, Demand, and Market EquilibriumFigure 10.19

10-9

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Categories of Economic ActivityFigure 10.2

10-1

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Percentage of Labor Force in AgricultureFigure 10.6

10-3 FAO and World Bank

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Sectoral Allocation of the U.S. Labor ForceFigure 10.28

10-15

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Share of Services in Gross Domestic ProductFigure 10.29

10-16 World Bank, World Development Indicators.

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Primary Activities: Agriculture

Subsistence Agriculture Production barely enough for family/extended

family Limited trade

Two types of subsistence agriculture Extensive Subsistence Agriculture

Large land areas and minimal labor input per acre

Intensive Subsistence Agriculture Cultivation of small land holdings through high labor input

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Extensive subsistence agriculture

Two important typesNomadic herding

The images of tall herders in Sub-Saharan AfricaShifting cultivation

Also referred to as slash and burn, or swidden Initial yields are high, but later plantings yield little

Ester Boserup theorized that population increases necessitate increase in technology Resulting in conversion from extensive to intensive

subsistence ag.

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Subsistence Agricultural Areas of the WorldFigure 10.7

10-4

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Intensive Subsistence Agriculture

Nearly half the world survives on this economic system Predominantly in

the rice belt

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The Green Revolution

Refers to the phenomenal growth in agriculture yields Introduction of better technology

Seeds, fertilizers, management

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Commercial Agriculture

Increase or decrease of output depended on pricesRole of government

Is there a pattern to the location?The contribution of von Thunen

Distance from the market mattersTransport costs influence location

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Transport Gradients and Agricultural ZonesFigure 10.12

10-5

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Commercial Ag.

Extensive Large scale farming

High use of capital Low levels of labor use

Intensive Inputs per acre are much higher than in extensive

Closer to urban areas Fruits, vegetables, dairy

Truck farming What’s “truck” got to do with it?

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Commercial Ag.

Special crops Such as grapes Plantation crops

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Livestock Ranching and Special Crop AgricultureFigure 10.14

10-7

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Generalized Agricultural Regions of North AmericaFigure 10.13

10-6 U.S. Bureau of Agricultural Economics; Agriculture Canada; Mexico, Secretaría de Agricultura y Recursos Hidráulicos.

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Food Resources

Expansion of Cultivated AreasIncreasing YieldsIncreasing Fish Consumption

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Areas with Naturally Fertile Soils

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Trends in World Food & Per Capita Production

Data from the Food and Agriculture Organization, the World Resources Institute, and U.S. Department of Agriculture.

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Comparison of Per Capita Food Production

Data from World Resources Institute.

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World Grain Yield Per Hectare

U.S. Department of Agriculture as reported in Lester R. Brown, et al., Vital Signs, 2000. New York: Norton and Worldwatch Institute, 2000.

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Other Primary Activities

Fishing and ForestryA common issues

Are we exceeding the maximum sustainable yield?

Mining and QuarryingLocation affected by

Quantity availableRichness of the oreDistance to the marketsLand and royalty costs

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Terms

ResourceNaturally occurring exploitable material

Two types:Renewable Resources

Can be used over and over againRegenerates faster than they are used

Nonrenewable ResourcesOnly a finite amount existsOnce used, it is gone

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Terms

Reserves are resources that are Known and Available with current technologies and at

current prices.Projected reserves:

Based on expected future prices and technologies

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When Reserves are Exhausted ...

What if the estimates are incorrect?New exploration techniques are improving

the scope and success of offshore drilling operations, adding to the world's known resources.

For example, in 1965, the petroleum industry's drilling capabilities limited offshore wells to waters less than 300 feet deep.Now ultra-deep drilling at more than 5000 feet is

no big deal!

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Classification of Natural Resources & Proved Reserves

General Classification of Resources by the U.S. Geological Survey.

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Abundance, by Weight, of Elements in the Earth’s Crust

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Leading Producers of Selected Minerals

Data from World Resources Institute.

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U.S. Reliance on Foreign Supplies of MineralsFigure 11.25

Data from U.S. Geological Survey, U.S. Department of the Interior.

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Concentration of Copper to be Economical

Data from the U.S. Bureau of Mines, U.S. Department of the Interior.

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Oil Supply

Resource unevenly distributedFew major suppliers

Saudi Arabia has largest reservesWorld supply controlled by the OPEC

40% of the world’s productionGroup is able to ‘fix’ crude oil pricesLimiting supply automatically increases

price

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Oil Demand

Modern economies need oilConsumption growth rate very high in the

fast growing less developed countriesDeveloped countries consume most

The United States is the leading consumer of petroleumAlmost a third of the world’s production

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Leading Producers and Consumers of Oil

(a), (b) Data from The BP Amoco Statistical Review of World Energy, 2000.

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Shares of Proved Oil Reserves, January 1, 2000

Data from The BP Amoco Statistical Review of World Energy, 2000.

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Coal

Typically consumed in the country where it is mined

Deposits found all over the EarthUnattractive because:

Sulfur and CO2 emissionsMining complicatedLogistics of transportationNot adaptable for mobile units

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Major Coal Basins

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Coal

Coal-based power plants invariably located close to where coal is foundTransporting coal is a waste on a per Btu

basisBtu stands for British Thermal Unit, which measures the energy needed to raise the temperature of one pound of water by one degree Fahrenheit

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Natural Gas

Natural gasAs petroleum becomes more expensive,

NG becomes a viable alternativeRussia has largest NG reservesLogistical problems with transporting NG

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Proved Natural Gas Reserves, January 1, 2000


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International Crude Oil Flow by Sea, 1999

The BP Amoco Statistical Review of World Energy, 2000. Used with permission.

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Worldwide Trade Flows of Natural Gas, 1999

Data from The BP Amoco Statistical Review of World Energy, 2000. Used with permission.

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Go Nuke?

Nuclear power was thought to be THE solution to the growing need for energy

Growth of nuclear power in the 1960s and 1970sDrive ended with the infamous

Three Mile Island incidentA definite no-no after the Chernobyl

disaster

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Producers and Consumers of Nuclear Energy, 1999


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Renewable Energy Resources

BiomassWood Waste

Hydroelectric PowerSolar PowerOther Renewable Energy Resources

Geothermal EnergyWind Power

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Hydropower

Water is a renewable source of energyUnless we screw up

things really bad :-(Not a major source of

world’s energyAbout one percent at a

global levelBut may be significant in

smaller regionsPacific Northwest, for

instance

Oregon, 1999

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Access to Raw Materials

Easy access, of course, reduces transportation cost on the input side

This importance decreased over time:Transportation costs have decreasedImprovement in manufacturing techniques

mean fewer raw materials than used beforeMore important is access to components

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Urbanization Economies

These are the cost savings from a spatial concentration of plants in the same urban areaThanks to

availability of labor, infrastructure, services, …

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Market Access

Access to the marketA ‘final’ product needs to be taken to the

marketIf an intermediary product

Which will feed into the production of another productDynamics of just-in-time manufacturing, etc.,

come into play

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Business Climate

Some places are considered more “pro business” than othersLow tax levelsLimited regulation, etc.Labor not a strong political forceSubsidies from government, such as

Low interest loans, lower taxes, ...

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Cost of Labor

As mentioned earlier, tradeoff between cost of labor and productivityLow wage rate alone does not determine

location of manufacturingTechnically, labor migrates where it is

in excess to where it is in demandExcess reflected in lower wages

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Cost of Labor

But, this migration does not always happenPeople have inertia similar to industrial

inertiaPersonal and family investmentRely on welfare policies

Results in regional variations in the cost of labor

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Multinational Corporations (MNCs)

These are companies whose operations are based in a number of countriesPractically all the major companies in the

US are examplesOperations are distributed in order to:

Make use of local factor advantagesBe closer to the market

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Multinational Corporations (MNCs)

Increase employment in “host” countries

Increase the host country’s output and exportsHowever, critics contend that MNCs take

away more from the country than they bring in

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Solectron, a Fortune 500 companyand one of the largest contract manufacturers, operates in 60 locations around the world

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Documents

1 Overview The Classification of Economic Activity and Economies Primary Activities: Agriculture Other Primary Activities Trade in Primary Products