scarcity choice

1. SAB 1101
INTRODUCTION TO
AGRICULTURAL
ECONOMICS

2. Learning Outcomes
When 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

3. Three Important Concepts
• Scarcity
• Choice
• Self-interest

4. Scarcity
Natural and biological resources
Natural: land, mineral deposits, water
Biological: livestock, crops
Human resources
 labor
Manufactured resources
 capital, machines, equipment, structures

5. Making Choices
Resource 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

6. Economic Decisions
Every Economic System Must Decide:
WHAT to produce
HOW & HOW MUCH to produce
WHOM is it produced for
WHEN to produce it
 WHERE to produce it

7. Opportunity Cost
The 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.

8. Specialization
Definition:
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

9. Relative strengths of Kansas

10. Relative strengths of Idaho

11. Relative strengths of Florida

12. Each state specializes in what it does
best and trades with other states…

13. Each state specializes in what it does
best and trades with other states…

14. Each state specializes in what it does
best and trades with other states…

15. Each state specializes in what it does
best and trades with other states…

16. Scope or Economics
Microeconomics versus macroeconomics
Micro - individuals or groups of individuals
Macro - broad aggregates at economy level
Fallacy of Composition
That which is true in an individual situation is not necessarily
true in the aggregate
Positive versus normative economics
Positive - “what is”, or “what would happen if”
Normative - “what should be”
Alternative economic systems
Capitalism, socialism, communism
U.S. has mixed economic system

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

18. Key Elements of Economic Models
Ceteris Paribus
 Opportunity Cost
 Diminishing Returns
 Marginality

19. 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”.

20. 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.”

21. What Agricultural Economics Do?
• Role at microeconomic level
Production economists
Market economists
Financial economists
Resource economists
• Role at macroeconomic level
• Marginal Analysis

22. Summary of Concepts
Resource scarcity - natural, human
and manufactured – forces individuals
and societies to make choices
Comparative advantage leads to
trade
Micro vs. macroeconomics
Definition of agricultural economics
The importance of agriculture to the
economics