This Farmers' Agribusiness training course has been developed to help both farmers and farmer organisations. Its intention is to provide access to provide access to additional skills and knowledge that will allow farmers to move from a 'farm' to a 'firm'. This lesson covers the basic governing principles of economic thinking including the key economic questions, factors of production, efficiency and the market structure.
This document provides definitions and explanations of key concepts in agricultural economics and related fields. It defines agricultural economics as the application of economic principles to agricultural production and distribution. It also defines and discusses the importance of concepts like agricultural production economics, farm management, agricultural finance, agricultural marketing, goods and services, utility, and different types of utility. The document aims to establish the foundational concepts and scope of agricultural economics as a field of study.
The document discusses key concepts in business economics and management. It defines management as working together towards a common goal, coordination, an ongoing process, and getting work done through others. It outlines the scope of business economics as applying economic theory and tools to solve business problems and aid decision-making. This includes demand analysis, production decisions, cost analysis, and investment management. The document also discusses important economic principles like marginal analysis, risk and reward, and how returns vary based on the riskiness of different assets.
Microeconomics studies individual economic units like consumers, producers, and markets for specific goods. It analyzes prices, wages, and particular industries. While useful for understanding free markets and welfare optimization, microeconomics provides a limited view of the entire economy and ignores collective functions. Macroeconomics, on the other hand, examines the whole economic system and how aggregate variables like output, unemployment, and inflation interact. It is important for developing economic policies, understanding national development, and addressing large-scale problems, but it is difficult to collect precise macroeconomic data and some sectors may be unaffected.
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This document discusses the importance and history of agricultural marketing. It outlines key benefits including increased farm income, market widening, and employment creation. It also examines factors that influence marketable surplus such as farm size, production levels, and consumption habits. Finally, it provides characteristics of ideal marketing systems, including pricing efficiency based on transportation and storage costs.
Maternal Care addresses all the common and important problems that occur during pregnancy, labour, delivery and the puerperium. It covers: the antenatal and postnatal care of healthy women with normal pregnancies, monitoring and managing the progress of labour, specific medical problems during pregnancy, labour and the puerperium, family planning, regionalised perinatal care
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Child Healthcare: Upper respiratory tract conditionSaide OER Africa
"Child Healthcare addresses all the common and important clinical problems in children, including:immunisation history and examination growth and nutrition acute and chronic infections parasites skin conditions difficulties in the home and society."
Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for...Saide OER Africa
This Farmers' Agribusiness training course has been developed to help both farmers and farmer organisations. Its intention is to provide access to provide access to additional skills and knowledge that will allow farmers to move from a 'farm' to a 'firm'. This lesson focuses on building skills and economic rationales for decision making under given farming scenarios that may have multiple options. We will spend some time looking specifically at Economic versus Accounting Costs & Relevant Cost Analysis.
This document provides definitions and explanations of key concepts in agricultural economics and related fields. It defines agricultural economics as the application of economic principles to agricultural production and distribution. It also defines and discusses the importance of concepts like agricultural production economics, farm management, agricultural finance, agricultural marketing, goods and services, utility, and different types of utility. The document aims to establish the foundational concepts and scope of agricultural economics as a field of study.
The document discusses key concepts in business economics and management. It defines management as working together towards a common goal, coordination, an ongoing process, and getting work done through others. It outlines the scope of business economics as applying economic theory and tools to solve business problems and aid decision-making. This includes demand analysis, production decisions, cost analysis, and investment management. The document also discusses important economic principles like marginal analysis, risk and reward, and how returns vary based on the riskiness of different assets.
Microeconomics studies individual economic units like consumers, producers, and markets for specific goods. It analyzes prices, wages, and particular industries. While useful for understanding free markets and welfare optimization, microeconomics provides a limited view of the entire economy and ignores collective functions. Macroeconomics, on the other hand, examines the whole economic system and how aggregate variables like output, unemployment, and inflation interact. It is important for developing economic policies, understanding national development, and addressing large-scale problems, but it is difficult to collect precise macroeconomic data and some sectors may be unaffected.
Agricultural Marketing and Economic DevelopmentFazlul Hoque
This document discusses the importance and history of agricultural marketing. It outlines key benefits including increased farm income, market widening, and employment creation. It also examines factors that influence marketable surplus such as farm size, production levels, and consumption habits. Finally, it provides characteristics of ideal marketing systems, including pricing efficiency based on transportation and storage costs.
Maternal Care addresses all the common and important problems that occur during pregnancy, labour, delivery and the puerperium. It covers: the antenatal and postnatal care of healthy women with normal pregnancies, monitoring and managing the progress of labour, specific medical problems during pregnancy, labour and the puerperium, family planning, regionalised perinatal care
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This document introduces a module about being a teacher in South Africa. It discusses the challenges teachers face in the country's education system and the need to transform teaching practices. The module is divided into seven sections that each explore a critical question about the teacher's role, such as what it means to be a professional teacher, how teachers can maintain authority, and whether they should focus on imparting knowledge or developing skills. The goal is to help teachers understand their roles better and teach with greater confidence and understanding.
Child Healthcare: Upper respiratory tract conditionSaide OER Africa
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Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for...Saide OER Africa
This Farmers' Agribusiness training course has been developed to help both farmers and farmer organisations. Its intention is to provide access to provide access to additional skills and knowledge that will allow farmers to move from a 'farm' to a 'firm'. This lesson focuses on building skills and economic rationales for decision making under given farming scenarios that may have multiple options. We will spend some time looking specifically at Economic versus Accounting Costs & Relevant Cost Analysis.
Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for...PiLNAfrica
This document provides an overview of a lesson on decision making and the differences between explicit and implicit costs for farmers. The lesson defines economic costs as including both direct and indirect costs, while accounting costs only include direct costs. It discusses how economic profit is calculated by subtracting total costs (explicit and implicit) from total revenue, while accounting profit only subtracts explicit costs. The lesson includes examples to illustrate these concepts and how farmers can use cost analysis to make decisions that maximize their economic profits.
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This document provides an overview of a Managerial Economics course syllabus. It includes 5 units that will be covered: general foundations of managerial economics, law of variable proportions and cost functions, product markets under different structures, national income concepts and business cycles, and macroeconomic environment. The objectives are to introduce economic concepts, familiarize students with using economics in managerial decision making, and understand applications of theories to business decisions. Key topics covered include demand analysis, elasticity, costs, market structures, fiscal and monetary policies, and India's economic transition. The syllabus aims to equip students with tools and insights for furthering organizational goals through economic analysis and decision making.
Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for...PiLNAfrica
This Farmers' Agribusiness training course has been developed to help both farmers and farmer organisations. Its intention is to provide access to provide access to additional skills and knowledge that will allow farmers to move from a 'farm' to a 'firm'.This sub-module defines the concept of economics, provides an overview of the concept of a firm and explores the centrality of profit in its models.
Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for...Saide OER Africa
This Farmers' Agribusiness training course has been developed to help both farmers and farmer organisations. Its intention is to provide access to provide access to additional skills and knowledge that will allow farmers to move from a 'farm' to a 'firm'.This sub-module defines the concept of economics, provides an overview of the concept of a firm and explores the centrality of profit in its models.
Farm management production and resource econmics (1).pdf19BAG7124SAHIL
This document provides information about an agricultural economics course on production economics and farm management. The 2-credit course is taught in the Department of Agricultural Economics at CSK Himachal Pradesh Agricultural University in Palampur, India. The course covers topics such as production functions, costs concepts, farm planning and budgeting, and linear programming. Students will be evaluated through mid-term and end-term practical and theory exams worth a total of 100 marks. References for the course include textbooks on farm business management, agricultural production economics, and production economics.
This document outlines the objectives and units of an MBA course on Managerial Economics. It covers key economic concepts applied to managerial decision making like demand analysis, costs, market structures, and macroeconomic factors. The 5 units include general foundations, production and costs, market determination under different structures, national income concepts, and the macroeconomic environment. Managerial economics integrates micro and macroeconomic theories to help managers make optimal decisions by analyzing business problems and tradeoffs in an environment of scarce resources.
This document outlines the objectives and content of a course on managerial economics. It introduces economic concepts and their importance for managerial decision making. The 5 units of the course cover general foundations, costs and production, market structures, national income and macroeconomics, and the macroeconomic environment. Unit 1 discusses the economic approach, circular flow of activity, objectives of firms, demand analysis, and demand forecasting. It defines managerial economics as the application of micro and macroeconomic principles to optimize business decision making under uncertainty.
Agriculture Marketing (Mkt165) chapter 1-introductionwatak manga pilu
The document provides an overview of agricultural marketing concepts. It discusses key topics such as the definition of agricultural marketing, farm marketing, the agricultural marketing circle, agribusiness marketing, marketing utilities, marketing concepts, the importance of marketing, the food and fiber system, the development and role of agricultural marketing, and the structure of agricultural products and production. The main purpose is to introduce foundational concepts in agricultural marketing.
This document provides an overview of managerial economics concepts. It begins with definitions of economics and managerial economics. It discusses the basic assumptions in economics of ceteris paribus and rationality. It also outlines the different types of economic analysis including micro vs macro, positive vs normative, and short run vs long run. The rest of the document discusses the decision making process in managerial economics, including the use of quantitative tools and statistical techniques. It also outlines the role of economics and the managerial economist in business decision making. It discusses growing challenges like globalization and technology that managerial economists face. Finally, it provides a short quiz with lessons about unexpected competitors.
UNIT - I: INTRODUCTION TO BUSINESS ECONOMICS: Definition - Nature and Scope -
The Role of economists in an organization; BASIC ECONOMIC PRINCIPLES: The concept
of Opportunity Cost - Discounting principle - Time perspective - Incremental Concept –
Equi-Marginalism; OBJECTIVES OF THE FIRM: Profit Maximization - Sales Maximization
and other objectives.
This document provides an overview of basic economic concepts including microeconomics, macroeconomics, the basic economic tasks of production and distribution, central direction vs market mechanisms, households as consuming units, firms as producing units, and the role of profit. It defines key terms and outlines the differences between microeconomics which focuses on individual units, and macroeconomics which looks at aggregate economic behavior and variables at a national level. The basic economic tasks that an economy must accomplish are production, distribution, and determining how resources are allocated.
This document provides an overview of engineering economics and key economic concepts. It discusses:
1. The unit introduces engineering economics and covers topics like demand analysis, elasticity, and forecasting techniques.
2. It defines economics and explains that economics studies how individuals and nations earn and spend money.
3. The key steps in engineering economic studies are outlined as the creative, definition, conversion, and decision steps.
This document provides an overview of engineering economics and managerial economics. It defines economics as the study of human activity and wealth at both the individual and national levels. It then discusses key concepts in engineering economics like the four steps of planning an economic study. Microeconomics is defined as the study of individual consumers and firms, while macroeconomics is the study of aggregate economic activity at the national level. Finally, it outlines the scope of managerial economics, including demand analysis, pricing strategies, production and cost analysis, and resource allocation.
1. What products and styles should I offer to meet customer demand and maximize profits?
2. How should I price my products to be competitive yet profitable?
3. What costs will I incur to operate the business and how can I control costs to ensure profitability?
Managerial Economics: myths and realities 1.pptxssalially
This document provides an overview of a Managerial Economics course. It outlines the course objectives, topics to be covered, teaching methods, assessment criteria, and recommended reading materials. The key topics include an introduction to economic concepts, production possibilities, market analysis, elasticity, production and cost theories, and market structures. The overall aim is to equip students with economic tools and techniques to analyze business decisions and strategies.
Agricultural production economics examines how to maximize output from limited resources on farms. It considers two key production decisions - how to organize resources to maximize a single commodity, and what combination of commodities to produce. The goals are to provide guidance to farmers on efficient resource use and facilitate efficient resource use economy-wide. Farmers face basic problems in deciding what and how to produce, how much to produce, when to buy and sell, and where to buy and sell. Agricultural production economics aims to determine optimal resource use and analyze factors influencing existing resource use patterns. It examines relationships and principles for rational resource allocation and management decisions.
This document provides an introduction to microeconomics. It defines microeconomics as the study of economic decisions made by individuals and businesses, as well as the interactions between buyers and sellers in the market. The document outlines several key microeconomic concepts, including supply and demand, opportunity costs, and different economic systems. It also provides learning objectives and topics to be covered in the chapter, such as defining economics, distinguishing microeconomics from macroeconomics, basic economic concepts, and different types of economic systems including capitalistic, socialistic, and mixed market economies.
validity. (The Case lulTTtuT 2. Discuss the Economics of Effective Ma.pdfFORTUNE2505
validity. (The Case lulTTtuT 2. Discuss the Economics of Effective Management. List and
discuss the first 4 items. L4- page
Solution
Effective management leads to use scare resources in a way so that the maximum economic
benefit could be achieved by the whole organization. It indicates the minimum waste and the
maximum returns.
Required items:
1) Setting goal: Effective management sets goal of the organization considering all probable
constraints.
2) Profit reorganization: The role of profit creates motivation; management creates possibilities
(like new expansions, lowering costs, etc) so that profit could be increased in a substantial
amount.
3) Incentives: Understanding of such is very important. Management wants to create more
market for more incentives.
4) Markets: Understanding the true market (like middle-class customers, lower middle-class
customers, etc) for which products to be sold is an important act of effective management.
Creating opportunities in the market is the key to success..
Introduction to Managerial Economics, What is Business Economics, Definition,SCOPE OF ECONOMICS, Scope of BE in Managerial Decision Making, Role of business economics,Comparing Business Economics And Economics, Relevance of Business Economics, Factors of Production, CENTRAL PROBLEMS OF AN ECONOMY OR BASIC ECONOMIC PROBLEMS
Asp openly licensed stories for early reading in africa mar 2015 slideshareSaide OER Africa
A recent presentation made by Tessa Welch, the African Storybook Project leader, to University of Pretoria Education students on the project and on openly licensed stories for early reading in Africa.
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This document outlines the objectives and units of an MBA course on Managerial Economics. It covers key economic concepts applied to managerial decision making like demand analysis, costs, market structures, and macroeconomic factors. The 5 units include general foundations, production and costs, market determination under different structures, national income concepts, and the macroeconomic environment. Managerial economics integrates micro and macroeconomic theories to help managers make optimal decisions by analyzing business problems and tradeoffs in an environment of scarce resources.
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This document provides an overview of managerial economics concepts. It begins with definitions of economics and managerial economics. It discusses the basic assumptions in economics of ceteris paribus and rationality. It also outlines the different types of economic analysis including micro vs macro, positive vs normative, and short run vs long run. The rest of the document discusses the decision making process in managerial economics, including the use of quantitative tools and statistical techniques. It also outlines the role of economics and the managerial economist in business decision making. It discusses growing challenges like globalization and technology that managerial economists face. Finally, it provides a short quiz with lessons about unexpected competitors.
UNIT - I: INTRODUCTION TO BUSINESS ECONOMICS: Definition - Nature and Scope -
The Role of economists in an organization; BASIC ECONOMIC PRINCIPLES: The concept
of Opportunity Cost - Discounting principle - Time perspective - Incremental Concept –
Equi-Marginalism; OBJECTIVES OF THE FIRM: Profit Maximization - Sales Maximization
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This document provides an overview of basic economic concepts including microeconomics, macroeconomics, the basic economic tasks of production and distribution, central direction vs market mechanisms, households as consuming units, firms as producing units, and the role of profit. It defines key terms and outlines the differences between microeconomics which focuses on individual units, and macroeconomics which looks at aggregate economic behavior and variables at a national level. The basic economic tasks that an economy must accomplish are production, distribution, and determining how resources are allocated.
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1. The unit introduces engineering economics and covers topics like demand analysis, elasticity, and forecasting techniques.
2. It defines economics and explains that economics studies how individuals and nations earn and spend money.
3. The key steps in engineering economic studies are outlined as the creative, definition, conversion, and decision steps.
This document provides an overview of engineering economics and managerial economics. It defines economics as the study of human activity and wealth at both the individual and national levels. It then discusses key concepts in engineering economics like the four steps of planning an economic study. Microeconomics is defined as the study of individual consumers and firms, while macroeconomics is the study of aggregate economic activity at the national level. Finally, it outlines the scope of managerial economics, including demand analysis, pricing strategies, production and cost analysis, and resource allocation.
1. What products and styles should I offer to meet customer demand and maximize profits?
2. How should I price my products to be competitive yet profitable?
3. What costs will I incur to operate the business and how can I control costs to ensure profitability?
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validity. (The Case lulTTtuT 2. Discuss the Economics of Effective Ma.pdfFORTUNE2505
validity. (The Case lulTTtuT 2. Discuss the Economics of Effective Management. List and
discuss the first 4 items. L4- page
Solution
Effective management leads to use scare resources in a way so that the maximum economic
benefit could be achieved by the whole organization. It indicates the minimum waste and the
maximum returns.
Required items:
1) Setting goal: Effective management sets goal of the organization considering all probable
constraints.
2) Profit reorganization: The role of profit creates motivation; management creates possibilities
(like new expansions, lowering costs, etc) so that profit could be increased in a substantial
amount.
3) Incentives: Understanding of such is very important. Management wants to create more
market for more incentives.
4) Markets: Understanding the true market (like middle-class customers, lower middle-class
customers, etc) for which products to be sold is an important act of effective management.
Creating opportunities in the market is the key to success..
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Farmer's Agribusiness Training Course: Module 5 - Agribusiness Management for Farmer Organisations. Lesson 2: Basic Principles of Economics
1. 22
MODULE5: Agribusiness Management for Farmer Organisations
LESSON 2: Basic Principles of Economics
TIME: 1 hour 36 minutes
AUTHOR: Prof. Francis Wambalaba
This lesson was made possible with the assistance of the following organisations:
Farmer's Agribusiness Training by United States International University is licensed under a
Creative Commons Attribution 3.0 Unported License.
Based on a work at www.oerafrica.org
2. MODULE 5
2
Agribusiness Management for Farmer
Organisations
BASIC PRINCIPLES OF ECONOMICS
LESSON
AUTHOR:
TIME:
Prof. Francis
1 hour 36 Wambalaba
minutes
INTRODUCTION:
OUTCOMES: :
:
By the end of this segment, the This lesson will cover the basic governing
learner should be able to: principles of economic thinking including the
key economic questions, factors of
Explain the meaning of the production, efficiency and the market
four factors of production from structure.
an economic perspective in
the context of farming
(production inputs).
Identify the type of market
structure that they belong to
and make appropriate
decisions depending on their
type of market structure and
interpret the role of prices as
signals of communication in
their context.
Describe the central questions
that govern economic
thinking.
Discuss the principles
governing efficient allocation of
resources including concepts
of supply and demand,
competitive market, market
equilibrium and competitive
strategies.
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Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
3. Factors of Production
As the term implies, the issues relating to factors of production relate to the production
process side of a farmer’s practices as a firm. There are four traditional factors (land,
labour, capital and entrepreneurs).
Land / Natural Resources
This first factor is defined as land resources and includes all natural resources on the
ground (such as vegetation, animals, insects, soil, water etc.), those underground (such as
minerals, rocks, soil, water, etc.) and those above ground (such as air, clouds, air space
and also climate). Issues that impact on this factor of production can include land size,
distribution, influence of culture on land uses, etc. Competition between farming activities
and urbanization is another contentious issue. Value addition per acre/hectre (or plot size)
increases as the urban areas spread into rural areas because the value for urban uses of
similar land is higher. While competition for land is economic, it can lead to political
competition and therefore conflicts.
Capital Resources
Capital resources are any man-made products that are used in the production of other
products. They include items such as machinery, tools and equipment, infrastructures such
as housing, transport and communication, and other types such as money and human
capital. It should be emphasized that these resources directly affect the ability of the farmer
to be competitive in the market place.
Labour
Labour resources such as human energy and skills used in the production process are the
third factor of production. It should be emphasized that unemployment is not about finding
a job but about a person not using their energy and skills to produce.
Entrepreneurship
Fourthly, entrepreneurship can be defined as human resources with ability to take risks
and invest in ideas (business farming activities especially in value addition). Access to
capital (money) and other inputs in the factor markets, access to consumers in the goods
market and manufacturers in the factor market are issues related to this factor of
production.
Finally, allow for discussion on any other resources issues that come up, such as
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importance of time, access to information, role of technology, human capital development
etc.
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
4. Activity 1
Group Discussion (15 minutes)
Work in groups of 5, consider and record experiences from the group on how local
issues have impacted on each of the four factors described above. (e.g. Describe your
access to land, urbanization pressures, access to capital, your competitiveness at
markets, access to skilled labour, and of course, your entrepreneurial skills.) Be
prepared to present your findings to the whole class.
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Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
5. Market Structure (10 Minutes)
In general, issues relating to market structure impact on the marketing process side of
the farmer’s practices as a firm.We mentioned these in the previous lesson so here is a
brief revision:
Perfect competition is the extreme situation where products are exact, there are very
many producers/sellers, very many consumers/buyers, and therefore no seller or buyer
can dominate the market. Perfect competition can lead to sellers undercutting each other.
Secondly, perfect monopoly is the extreme opposite to perfect competition where
products are unique; there is only one producer/seller who therefore dominates the market.
If there is only one consumer/buyer, they are called a monopsony. In farming, however,
this rarely exists and farmers find themselves almost always in a competitive environment
rather than in a monopoly.
Thirdly, monopolistic competition is a situation where there are many competitors and it
is closer to perfect competition market. This is realistic of what we typically call
competition in our markets, but for purposes of this course, we will combine it with perfect
competition and simply refer to the environment as competitive market.
Finally, an oligopoly is a situation where there are few competitors and is closer to the
monopoly market. It is the most realistic of what we typically call monopoly in our markets,
but for purposes of this course, we will combine it with perfect monopoly and simply refer
to the environment as monopoly market.
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Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
6. Activity 2
Shifting from competition to Monopoly (10 minutes)
Work in the same group as before.
1. List the advantages and disadvantages of operating in a competitive
market.
2. List the advantages and disadvantages one would face if they belonged in a
monopoly market.
3. Determine which market the group would prefer and provide reasons why.
4. What actions could you take to move closer to a monopoly situation and
gain from economies of scale?
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Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
7. Economics of Scale (5 Minutes)
This concept refers to the cost advantages that a business obtains due to expansion or
collaboration. There are factors that cause a producer’s average cost per unit to fall as
the scale of output is increased. Farmer organizations, for example, can leverage this
type of advantage. Economies of scale include product specific economies, plant specific
economies and firm specific economies.
Product specific economies are related to output of one product which may allow for
greater specialization in use of labour and capital.
Plant specific economies are related to total output of one plant (with multiple
products). For example, an investment in a larger pipeline may cost almost the same but
have more capacity, or an overhead of one supervisor managing many people, or the use
of existing spare parts and personnel on various activities.
Specific economies are related to total output of a firm’s operations from different
regions and can benefit from production and distribution from various plants with
capacity, discounts and fixed costs for marketing and sales promotions spots, or even
technological innovations using in-house resources.
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Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
8. Key Questions of Economic Thinking (10 minutes)
Five fundamental Economic Questions
The five key fundamental economic questions include; What goods and services are
produced and what quantities; How are goods and services produced; When are goods
and services produced; Where are goods and services produced; Who consumes the
goods and services produced.
Activity 3
The 5 Fundamental Questions
Answer these questions but keep in mind the concept of consumer sovereignty -
the buyer’s needs nearly always dictate the answers to these questions.
What to Produce?
What determines whether we build more homes or make more VCRs?
How do these choices change over time?
How are they affected by changes in technology?
How to Produce?
Why do we use machines in some places and people in others?
Does technology destroy jobs?
When to Produce?
How do seasons affect production?
What makes production rise and fall?
Where to Produce?
What determines where goods and services are produced?
How do changing patterns of production location affect types and wages of
jobs we have?
For whom to Produce?
What constitutes demand?
Why do doctors earn more than nurses?
See the Feedback section at the end of this lesson to
Page 235
see a model answer or comments about this activity
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
9. Economic Ways of Thinking
Economic theory can be applied at both the personal level as well as at a regional or
national level. However, the perspective is different according to your involvement.
Contrast these two perspectives:
From a Microeconomic Perspective:
A choice is a tradeoff (opportunity cost)
Choices are made at the margin (additional benefit from an additional cost instead
of total benefits from total cost)
Exchange is voluntary (& markets are an efficient way of exchange)
Markets can and do fail.
From a Macroeconomic Perspective:
For the economy as a whole, Expenditure = Income = Value of Production
Productivity improves standards of living
Inflation occurs when the quantity of money increases faster than production
Unemployment can result from market failure but some unemployment is
productive.
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Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
10. Market Forces of Supply and Demand
The forces of supply and demand help us not only to appreciate the significance of the
customer (demand) but also from a farmers’ perspective, how unwise competition can be
destructive. In this section, we define and discuss demand and supply and the role that
price plays as a signal and communication for action.
What is demand?
Demand exists only when there is willingness and abilityto buy a product (goods or
service) or resource. It is a relationship between the quantity demanded and price of a
product or resource. To have a demand for an item means: you want it; you can afford it;
and you have made a definite plan to buy it.
Determinants of Demand include; Price of the good (x); Price of related/substitute
goods (y) and complementary goods (z); Income (Normal goods or abnormal or given
goods); Population; Tastes & preferences; and Future expectations (on all of the above)
a) Deriving an Individual Demand Curve (Due to changes in price of good x)
Fig. 1: Individual Demand Schedule Fig. 2: Individual Demand Curve
The slope of the demand curve is only influenced by changes in price of the commodity in
question(x). In fig 1 and 2 above, the demand schedule provides changes in quantity
demanded in response to changes in price. From fig. 1, we notice that the lower the
Page 237
price the greater the number of goods purchased. When we plot these combinations we
get the demand curve in fig. 2. This results in a movement along the demand curve
referred to as change in quantity demanded.
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
11. b) Deriving a Market Demand Curve
The market demand curve is a horizontal addition of the individual demand curves as
shown in fig. 3 below. For example, when the price is 6 shillings, consumer one (left)
purchases 30 units while consumer two (middle) purchases 60 units. The total market
(right) demand is 90 units.
Fig. 3: Market Demand
c) Change in Demand – shifts (due to change in other factors)
As we noted in lesson 1 with respect to the PPC, similarly, an increase in demand shifts
the demand curve to the right while a decrease in demand shifts the demand curve to the
left. Usually, this is simply referred to as change in demand. Shifts usually result from
changes in other factors (other than price of good x). One way of testing this is to ask,
why would anyone buy more (or less) when the price of x is held constant?
A summary of the effects from changes in
price (change in quantity demanded) and
changes from other factors (change in
demand) is presented below.
Quantity demanded decrease ↓ if
there is an:
↑ in price of x
Demand decrease ↓ if there is a:
↓ in price of substitute
↑ in price of complement
↓ in income
↓ tastes & preferences
Page 238
↓ in population
↓ Time
Expect above change
Fig. 4: Shifts in Demand Curve
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
12. What is supply?
Supply exists only when there iswillingness and ability to produce and sell a product
(good or service) or resource.It is a relationship between the quantity supplied and price
of a product or resource.To be able to supply an item means one has; resources and
technology to produce it; can profit from producing it; has made a definite plan to produce
and sell it.
Determinants of Supply are; Price of the good (x); Price of related goods such as
substitute goods (share inputs, e.g., plot of land) or complementary goods (jointly
produced, e.g., beef & hides); Price of resources used to produce it such as land, labour,
capital & entrepreneurship; Number of suppliers; Technology; and future expectations (on
above)
a) Deriving an Individual Supply Curve (due to changes in price of good x)
The slope of the supply curve is only influenced by changes in price of the commodity in
question (good x). In fig 5 and 6 below, the supply schedule provides changes in quantity
supplied in response to changes in price. From fig. 5, we notice that the lower the price,
the lower the goods sold. When we plot these combinations we get the supply curve in
fig. 6. This results in a movement along the supply curve referred to as change in
quantity supplied.
Fig. 5: Individual Supply
Schedule
Fig. 6: Individual Supply Curve
Just as in the case of the market demand curve, the market supply curve too is a
Page 239
horizontal addition of the individual supply curves at a given price.
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
13. b) Forces of Supply and Demand (Surplus)
When the supply curve and demand curve
are overlapped on each other, they reveal
either a disequilibrium or equilibrium. Fig.
7 on the left reveals a surplus
disequilibrium. For example;
At P = 17,
Quantity demanded = 45 while
Quantity supplied = 57
A surplus of 12 results (or 45-57)
With a surplus, suppliers undercut each
other pushing prices down towards
equilibrium.
Fig. 7: Surplus Disequilibrium
c) Forces of Supply and Demand (Shortage)
When the supply curve and
demand curve are again
overlapped on each other, they
again reveal either a
disequilibrium or equilibrium.
However, in this case in fig. 8 on
the left reveals a shortage
disequilibrium. For example;
At P = 10,
Quantity demanded = 70 while
Quantity supplied = 10
A shortage of 60 results (or 10-
70)
With a shortage, consumers
Fig. 8: Surplus Disequilibrium
Page 240
outbid each other pushing prices
up towards equilibrium.
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
14. d) Market Equilibrium
Finally, when the supply curve and
demand curve are once more overlapped
on each other, they again reveal either a
disequilibrium or equilibrium. However, in
this case as shown in Fig. 9 on the left
reveals equilibrium.
For example;
At P = 15,
Quantity demanded = 50 and
Quantity supplied = 50
Therefore at P = 15, there is an equilibrium
(i.e., Qs = Qd = 50).
Neither surplus nor shortage results so the
market clears and is stable
Fig. 7: Surplus Disequilibrium
Page 241
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
15. Porter’s Competitive Strategy (5 minutes)
In each of these cases, the farmer who intends to transform into a firm should anticipate
and plan for five key challenges as envisioned by Michael Porter. These include
substitutes, potential entrants, buyer power, supplier power and intensity of rivalry as
shown in figure 10 below.
Substitutes
In this case, the farmer must expect that others will produce substitute goods (similar but
not exact) that will compete with the farmer’s products in the market place and should
therefore have a plan on how to compete with competitors.
Potential Entrants
Even where there is no competition, the farmer must always anticipate new competitors.
This may mean satisfying customers even when there is no competition.
Buyer Power
In cases such as farming, buyers in the goods market tend to have power to dictate the
prices. This is especially true with middlemen. In other cases, there tend to be too many
producers that give buyers more power to dictate prices. These and many other similar
challenges should be anticipated.
Supplier Power
This is where suppliers in the factor market and product market may have power over
the farmer and thus dictate prices of land, labour, capital and other raw materials.
Intensity of Rivalry
Typically, this occurs in the competitive market where others produce exact products,
such as in farming where there are very many producers of the same product. This may
Page 242
mean fighting each other by cutting prices while improving quality and increasing
amounts per unit price.
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
16. Conclusion
Hopefully, you can now see that an understanding of the basic principles of economics
can be an advantage when involved with agricultural enterprises. These principles can
provide you with an understanding of how the market operates but can also provide you
with a set of strategies to respond to changes in the market. It can also provide you with
ideas on how to make yourself more competitive within that same market.
Summary
In this lesson we studied…
Four factors of production: land / natural resources, capital
resources, labour and entrepreneurship.
Market structures: competitive, monopoly, monopolistic and
oligopoly.
Central questions that govern economic thinking, namely the five
fundamental questions: What goods and services are produced
and what quantities?;How are goods and services produced?;
When are goods and services produced?; Where are goods and
services produced?; Who consumes the goods and services
produced?
The principles governing efficient allocation of resources
including concepts of supply and demand and market
equilibrium or disequilibrium with shortages or surpluses.
Competitive strategies as defined by Porter. These include being
aware of and responding to the existence of substitutes,
potential entrants, buyer’s power, supplier’s power and
competitive rivalry.
Page 243
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
17. Glossary
Demand
In economics, demand is the desire to own anything, the ability to pay for it, and the
willingness to pay. The term demand signifies the ability or the willingness to buy a
particular commodity at a given point of time.(Perkin, 1997) or
http://en.wikipedia.org/wiki/Demand
Economies of Scale
Economies of scale, in economics, refers to the cost advantages that a business
obtains due to expansion. There are factors that cause a producer’s average cost per
unit to fall as the scale of output is increased. "Economies of scale" is a long run
concept and refers to reductions in unit cost as the size of a facility and the usage
levels of other inputs increase. (Perkin, 1997) or
http://en.wikipedia.org/wiki/Economies_of_Scale
Factors of Production
Factors of production… refer(s) specifically to the primary factors, which are stocks
including land, labour (the ability to work), and capital goods applied to production. The
primary factors facilitate production but neither become part of the product (as with raw
materials) nor become significantly transformed by the production process (as with fuel
used to power machinery). (Perkin, 1997) or
http://en.wikipedia.org/wiki/Factors_of_production
Supply
In economics, supply is the amount of some product producers are willing and able to
sell at a given price all other factors being held constant. Usually, supply is plotted as a
supply curve showing the relationship of price to the amount of product businesses are
willing to sell. (Perkin, 1997) or
http://en.wikipedia.org/wiki/Supply_(economics) Page 244
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics
18. Feedback
Feedback Activity 3
(What to produce?)
Consumer demand
Tastes and preferences change over time
Resources available and potential
(How to produce?)
Resource endowment and the need to meet the consumer’s budget.
In reality, it restructures them and in many instances reinvents new ones.
(When to produce?)
While each product has a season for production, strategic farmers focus on
season for demand.
Changes in consumer demand.
(Where to produce?)
Access to customers.
Location of the consumers.
(For whom to produce?)
Willingness (tastes & preferences) and ability to pay (income and prices).
Forces of supply & consumer demand.
Page 245
Module 5: Agribusiness Management for Farmer Organisations Lesson 2:Basic Principles of Economics