Introduction to the Economics

of Agriculture
Diah Setyorini Gunawan
 Introduction

• This chapter explain why economics is important

and interesting
• The major discussion explains why scarcity is the
fundamental concept of economics
• Economics is a Social Science, meaning that it
uses scientific methods to study the way people
behave
• Economist who interested in Agriculture centers
on five questions that might be asked by
a producer of agricultural goods, a consumer,
or even an operator of a business that serves
agriculture
Economics is Important and Interesting

• Rapid changes in the agricultural industry make this

an exciting time to study Agricultural Economics
• Economic principles help explain the reasons
behind the changes in agricultural policy, and the
impacts of the new policies as they are legislated
and implemented
 What is Economics, and What is it About?

• Economics is a Social Science that centers on the

study of humans as the act and interact in the
marketplace
1. Producers and consumers
Economist are particularly interested in how
people produce and consume items such as food,
clothing, and housing
 2. Macroeconomics and microeconomics
Economics divides into two major categories:
Macroeconomics and Microeconomics
3. Positive and normative economics
Positive economics based on facts, normative
economics based on opinions
 Scarcity
• Economics is about scarcity
• Scarcity = because resources are limited, the
goods and services produced from using these
resources are also limited, which means
consumers must make choices, or tradeoffs
among different goods
• Economists talk extensively about “goods”
If a good is scarce, it becomes an Economic Good
• The fundamental problem of economics is
“scarcity forces us too choose”
The Economic Organization of Society
• Three fundamental ways of organizing an
economy include:
1. a Market Economy
2. a Command Economy
3. a Mixed Economy
 A Model of an Economy
• The individuals in the economy are divided into
two categories: Firms (producers) and
Households (consumers)
• Resources are used to produce output
Resources are also called Inputs, Factors of
Production, or Factors
 Using Graphs
• Graphs are often used to summarize and interpret
economic information
• Most graphs allow the viewer to look at the
relationship between two variables while holding
everything else constant
• Examples of graphs:
1. A graph of the demand for hamburger in Miami,
Florida
2. Veterinary clinic in Milwaukie, Wisconsin
 Absolute and Relative Prices

• Absolute price = a price in isolation, without

reference to other prices
• Relative prices = the prices of goods relative
to each other