SAB 1101INTRODUCTION TOAGRICULTURAL ECONOMICS

Learning OutcomesWhen you complete this chapter, you should be able to:

• Define economics and agricultural economics• Distinguish between the fields of microeconomics and macroeconomics

• Discuss the difference between positive and normative economic policy analysis

Three Important Concepts• Scarcity• Choice • Self-interest

ScarcityNatural and biological resources

Natural: land, mineral deposits, waterBiological: livestock, crops

Human resources labor

Manufactured resources capital, machines, equipment, structures

Making ChoicesResource scarcity forces consumers and producers to make choices

Opportunity cost – an implicit cost associated with economic decisions

Specialization – comparative advantage and the basis for trade

Individual decisions – maximization of consumer utility and producer profits

Societal decisions – production possibilities given existing resources

Economic DecisionsEvery Economic System Must Decide:

WHAT to produceHOW & HOW MUCH to produceWHOM is it produced forWHEN to produce it WHERE to produce it

Opportunity CostThe implicit cost associated with the next best alternative in a set of choices available to decision-makers.

Opportunity cost associated with pursuing your study at UPMKB.

SpecializationDefinition:the separation of productive activities between persons or geographic areas in such a manner that none of these persons or regions is completely self-sufficient.

Example of specialization for regions of the United States

Relative strengths of Kansas

Relative strengths of Idaho

Relative strengths of Florida

Each state specializes in what it doesbest and trades with other states…

Each state specializes in what it doesbest and trades with other states…

Each state specializes in what it doesbest and trades with other states…

Each state specializes in what it doesbest and trades with other states…

Scope or EconomicsMicroeconomics versus macroeconomics

Micro - individuals or groups of individualsMacro - broad aggregates at economy level

Fallacy of CompositionThat which is true in an individual situation is not

necessarily true in the aggregatePositive versus normative economics

Positive - “what is”, or “what would happen if”Normative - “what should be”

Alternative economic systemsCapitalism, socialism, communismU.S. has mixed economic system

Levels of Economic Analysis• Microeconomic Consumer Producer• Market Supply Demand• Macroeconomic Fiscal Policy Monetary Policy

Key Elements of Economic ModelsCeteris Paribus Opportunity Cost Diminishing Returns Marginality

Definition of Economics• “…a social science that deals with how consumers, producers and societies choose among the alternative uses of scarce resources in the process of producing, exchanging, and consuming goods and services”.

What is Agricultural Economics• “…an applied social science that deals with how producers, consumers and societies use scarce resources in the production, processing, marketing and consumption of food and fiber products.”

What Agricultural Economics Do?• Role at microeconomic level

Production economistsMarket economistsFinancial economistsResource economists

• Role at macroeconomic level• Marginal Analysis

Summary of ConceptsResource scarcity - natural, human

and manufactured – forces individuals and societies to make choices

Comparative advantage leads to trade

Micro vs. macroeconomicsDefinition of agricultural economicsThe importance of agriculture to the

economics