1. Introduction to Agricultural Economics
Chapter 1

2. Introduction to Agricultural Economics
Introduction to Economics – You can’t have your
cake and eat it too!
What is Economics?

3. Introduction to Agricultural Economics
Introduction to Economics – You can’t have your
cake and eat it too!
What is Economics?
Economics is a social science that deals with how
consumers, producers and societies choose among
Alternative uses of scarce resources in the process
of producing, exchanging, and consuming goods
and services.

4. Introduction to Agricultural Economics
There are two branches of Economics -- Micro and
Macroeconomics.
Macroeconomics focuses on broad aggregates like
growth in GDP, interest rates, inflation and employment
Microeconomics focuses on consumer and producer
level decision making

5. Types of Resources Natural and Biological -- example (Land)
Human – example (Labor)
Manufactured – example (Capital)
Management – a special kind of labor
Scarcity – finite quantity of resources available, it’s a relative concept.

6. Choices and Sacrifices
Opportunity Cost – the value of the benefit forgone
from the next best alternative to the one you have
chosen.
What are some real world examples of opportunity
cost?

7. Graphs and Economics
Economic analysis is used to explain people’s responses to changes in their economic environment.
Economists do this to try and predict future behavior with some accuracy.
Relationships can be complicated and sometimes better explained using graphs.

8. Graphs and Economics
What is this in mathematical terms?

9. Graphs and Economics 3 2 1 -1 -2 -3
How about this?

10. Graphs and Economics Y II
Quadrant I 3 2 1 -1 -2 -3 X
III IV
What kind of values do X and Y take on in Quadrant 1?
2? .. 3? .. 4?

11. Graphs and Economics Y II
Quadrant I 3 2 1 -1 -2 -3 X
III IV

12. Graphs and Economics 4 3 2 1
In Economics we use Quadrant I almost exclusively, Why is
that the case?

13. Graphs and Economics
Price $ 4 3 2 1
Price is a variable that is denoted in Dollars, prices aren’t negative.
Right?

14. Graphs and Economics
Price $ 4 3 2 1
Quantity
What about quantities? Can they be negative? What are the
Units?

15. Graphs and Economics
Price $ 4 3 2 1
Demand
Quantity
What kind of relationship is denoted between price and quantity
In this graph?

16. Graphs and Economics
Price $
Supply 4 3 2 1
Quantity
What kind of relationship is denoted between price and quantity
In this graph?

17. Graphs and Economics
Price $
Supply 4 3 2 1
Quantity
How would you describe this relationship? What is true about
Its slope throughout?

18. Graphs and Economics
Price $ 4 3 2 1
Quantity
How would you describe this relationship? What is true about
Its slope?

19. Graphs and Economics
Costs $ 4 3 2 1
Average Total Costs
Quantity
How would you describe this relationship? What is true about
Its slope?

20. Graphs and Economics
Costs $ 4 3 2 1
Average Total Costs
Quantity
This relationship is Convex, It has a minimum. We want to
minimize costs.

21. Graphs and Economics
Output 4 3 2 1
Total Physical Product
Quantity Input
How would you describe this relationship? What is true about
Its slope?

22. Graphs and Economics
Output 4 3 2 1
Total Physical Product
Quantity Input
This relationship is Concave, it has a maximum. We want to
maximize production or profit.

23. Graphs and Economics
Output 4 3 2 1
What does this look
Like?
Quantity Input
This relationship is Concave, it looks like a cave!

24. Graphs and Economics One more curvy line
Output 4 3 2 1
Total Physical Product
Quantity Input
This relationship is Concave and Convex, it does have a
global maximum though.

25. Graphs and Economics A couple more things:
1 Ceteris paribus means “all other things remaining equal”
This is a simplifying assumption that allows us to
determine the impact of single changes in the economic
environment.
2 The independent variable is on a different axis to
that of your math class. Quantity (X) depends on Price (Y)
economics was developed at the same time as
mathematics and the econ guy labeled his graphs
differently. Sorry!

26. Graphs and Economics Actually Three:
3 We make an assumption for most of the remainder
of this class that all variables can be considered
continuous.
What is the difference between that and
being discrete?

27. Graphs and Economics
I think that about does it for Chapter 1