The Economics of Agribusiness IAFNR Agribusiness Module

U.S. Food and Fiber System Term used to represent all businesses involved in the production, processing, and distribution of food and fiber products to U.S. consumers. Term used to represent all businesses involved in the production, processing, and distribution of food and fiber products to U.S. consumers. Have you ever heard the phrase “from the farm to the table,” this describes that process Have you ever heard the phrase “from the farm to the table,” this describes that process This system includes four sectors This system includes four sectors The farm input supply sector The farm input supply sector The farm business sector The farm business sector The processing and manufacturing sector The processing and manufacturing sector The wholesale and retail sector The wholesale and retail sector The Food and Fiber system employs more than one-fifth of the nation’s workforce! The Food and Fiber system employs more than one-fifth of the nation’s workforce! Sound familiar to what we know of as “The Big Picture of Agribusiness”?!

Product Circular Flow Table Resource Markets (Land, Labor, Capital, & Management) Product Markets (Finished Goods & Services) Households Business Firms Sell Resources Buy Products Buy Resources Sell Products Money Flow (Wages, profits) Money Flow (Consumer Expenses) (Business Earnings) (Business Expenses)

Product and Resource Markets Product Market SectorProduct Market Sector Market for finished goods from producers (businesses) to consumers (households) Consumers pay producers for goods and services Market sets prices based upon quantity and quality of the goods and services Resource Market Sector Movement of economic resources owned by consumers to business firms Includes Land, Labor, Capital, and Management Producer pays consumer for their resources Households are sellers and Businesses are buyers in the Resource Market Households are buyers and Businesses are sellers in the Product Market

Scarcity of Resources Resources are inputs that are found in nature and used to produce goods and services Resources are inputs that are found in nature and used to produce goods and services Land, Labor, Capital, and Management Land, Labor, Capital, and Management If resources are scarce then goods and services are scarce as well If resources are scarce then goods and services are scarce as well Alternatives must be made Alternatives must be made What kind of alternatives is the U.S. considering because of scarce resources? Image Retrieved From: review.com/why-scarcity-improves-marketing/

Supply and Demand in Agribusiness

Supply and Demand Represent relationship of quantity and price Represent relationship of quantity and price Work together to regulate price within markets Work together to regulate price within markets Demand- quantity of a good or service that buyers are willing to purchase at difference prices Demand- quantity of a good or service that buyers are willing to purchase at difference prices Supply- quantity of a good or service that sellers are willing to offer at different prices Supply- quantity of a good or service that sellers are willing to offer at different prices Both supply and demand occur in the economic market and are the true interaction between buyers and sellers or households and businesses Both supply and demand occur in the economic market and are the true interaction between buyers and sellers or households and businesses How and why do supply and demand affect each other?

Law of Supply A statement about link between price and quantity supplied of a good or service A statement about link between price and quantity supplied of a good or service Law states that price and quantity supplied are directly related Law states that price and quantity supplied are directly related If price increases, quantity supplied increases If price increases, quantity supplied increases If price decreases, quantity supplied decrease If price decreases, quantity supplied decrease Image Retrieved from:

Law of Demand A statement about link between price and quantity demanded of a good or service A statement about link between price and quantity demanded of a good or service Law states that price and quantity supplied are inversely related Law states that price and quantity supplied are inversely related If price increases, quantity demanded decreases If price increases, quantity demanded decreases If price decreases, quantity demanded increases If price decreases, quantity demanded increases Image retrieved from w-of-demand

Reaching Equilibrium of Supply and Demand How are Quantity and Price determined in Supply and Demand? In an ideal market the price will adjust to the point of equilibrium- or where quantity demanded equals quantity supplied In reference to demand anything below the point of equilibrium is considered shortage, and anything above is surplus Image Retrieved from: cs3.asp

Economic Concepts to Know Opportunity CostOpportunity Cost Decisions are made in regards of use of scarce resources When a resource is used for one activity or product it cannot be used for another Value of what is given up is considered opportunity cost. Is not always translated to a dollar amount (ex. time) Externalities Very important economic concept, but cannot be captured or realized Involves environment surrounding the economic area Not all costs or returns of a transaction are made by company Costs and returns not made by company are considered externalities Example: Farmers can purchase some things tax-free, yet when farmers sell goods taxes are added to price. Some of his returns go to government.

References Ricketts, C., & Ricketts, K. (2009). Agribusiness Fundamentals & Applications. New York: Delmar Cengage Learning. Ricketts, C., & Ricketts, K. (2009). Agribusiness Fundamentals & Applications. New York: Delmar Cengage Learning. (2014) The Law of Supply. Retrieved from: (2014) The Law of Supply. Retrieved from: (2014) The Law of Demand. Retrieved from: (2014) The Law of Demand. Retrieved from: