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

-2 -1 -1 1 2

-2

-3

How about this?

Graphs and Economics
Y
II Quadrant I
3

1
X
III -2 -1 -1 1 2 IV

-2

-3

What kind of values do X and Y take on in Quadrant 1?

2? .. 3? .. 4?
Graphs and Economics
Y
II Quadrant I
3

1
X

III -2 -1 -1 1 2 IV

-2

-3
Graphs and Economics

1 2 3 4

In Economics we use Quadrant I almost exclusively, Why is

that the case?
Graphs and Economics
Price $

1 2 3 4

Price is a variable that is denoted in Dollars, prices aren’t negative.

Right?
Graphs and Economics
Price $

1 2 3 4 Quantity

What about quantities? Can they be negative? What are the

Units?
Graphs and Economics
Price $

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

1 2 3 4 Quantity

What kind of relationship is denoted between price and quantity

In this graph?
Graphs and Economics
Price $
Supply

1 2 3 4 Quantity

How would you describe this relationship? What is true about

Its slope throughout?
Graphs and Economics
Price $

1 2 3 4 Quantity

How would you describe this relationship? What is true about

Its slope?
Graphs and Economics
Costs $

4
Average Total Costs
3

1 2 3 4 Quantity

How would you describe this relationship? What is true about

Its slope?
Graphs and Economics
Costs $

4
Average Total Costs
3

1 2 3 4 Quantity

This relationship is Convex, It has a minimum. We want to

minimize costs.
Graphs and Economics
Output

2
Total Physical Product
1

1 2 3 4 Quantity Input

How would you describe this relationship? What is true about

Its slope?
Graphs and Economics
Output

2
Total Physical Product
1

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 What does this look

Like?
3

1 2 3 4 Quantity Input

This relationship is Concave, it looks like a cave!

Graphs and Economics
Output One more curvy line

4
Total Physical Product
3

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