Introduction to Agricultural Economics Chapter 1

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

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.

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

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.

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?

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.

Graphs and Economics What is this in mathematical terms? -2 -1 0 1 2

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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!

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?

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