INTRODUCTION TO AGRICULTURAL
ECONOMICS
AEDM 111
Prepared by
Dr. M Christian
and Prof AS
Oyekale
MODULE INFORMATION
Module code : AEDM 111
Module credits : 12
Module name : Introduction to Agricultural Economics
NQF :5
Qualification : Diploma
Name of Lecturer : Mrs TC Molelekoa and Prof AS Oyekale
Telephone : 018 389 2751
Email address :
[email protected] 2
MODULE OUTCOMES
At the end of this module, students should be able to:
1. Demonstrate understanding of basic economic concepts.
2. Analyse how market forces of demand and supply determine
equilibrium.
3. Compare the advantages and disadvantages’ of different
market structures.
4. Understand the types farm inputs and objectives of production
5. Understand the major types of unemployment and inflation.
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UNIT OUTCOMES
At the end of this unit, students should be
able to:
Understand the concept of Economics.
Understand the concepts of scarcity, choice
and opportunity cost.
Understand the concept of Agricultural
Economics.
Apply Production Possibility Curve to
Scarcity, Choice and Opportunity Cost.
Understand the reasons for disagreements
among economists.
What is Agricultural Economics?
We cannot define Agricultural Economics without knowing what
Economics is all about:
• Definitions of Economics: Parkin:
Parkin: Is the social science that studies the choices that individuals,
businesses, government and the entire societies make as they cope
with scarcity .
ALFRED MARSHALL - Economics is a study of mankind in the ordinary business of
life.
GEORGE BERNARD SHAW -Economics is the art of making the most out of life.
Other definitions
The study of how society chooses to allocate its scarce resources to
enhance the production efficiency of goods & services to satisfy
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unlimited wants.
Economics defined:
Lionel Robbins (1898–1984), a prominent 20th
century British economist, set the tone for most
modern definitions in the 1930s by defining
economics as “the science which studies human
behaviour as a relationship between ends and scarce
means which have alternative uses”.
It should be obvious that economics has to do with
the use of scarce re sources to satisfy unlimited
wants.
The central elements of economics are therefore
scarcity and choice.
Scarcity
The term scarcity refers to the finite quantity of
resources that are available to meet society’s needs.
Because nature does not freely provide enough of
these resources, only a limited quantity is available.
Scarce resources can be broken down into the
following categories: (1) natural and biological
resources; (2) human resources; and (3) manufactured
resources.
Choice
Resource scarcity forces consumers and producers to
make choices.
These choices have a time dimension.
The choices consumers make today will have an
effect on how they will live in the future.
The choices businesses make today will have an
effect on the future profitability of their firms.
Your decision to go to college rather than get a job today was
probably based in part on your desire to increase your future
earning power or eventual wealth, knowing what your earning
potential would be if you did not attend college.
Needs and Wants?
NEEDS – “stuff” we must have to survive, generally: food, shelter, clothing
WANTS - “stuff” we would really like to have, e.g: fancy food, car, flat screen tv
etc
Also know as LUXURIES
Demand is different from wants …… Do you think so?
But There is a Cost to Pay
Opportunity cost refers to the implicit cost associated
with the next best alternative in a set of choices
available to decision makers.
Sometimes the choices we make are constrained not only by
resource scarcity, but also by noneconomic considerations.
These forces may be political, psychological, sociological,
legal, or moral.
What is Agricultural Economics?
Economics examines:
• how scarce resources are allocated.
• how firms maximize profits.
• how market competition affects firms and
consumers.
• the limitations of markets.
We will examine some problems unique to agriculture
which lead to The Farm Problem.
What is Agricultural Economics?
Agriculture is among the most prominent sectors of any
economy.
If you were to say “Agricultural economics is the application
of economic principles to agriculture,” you would be
technically correct— This is a narrow view.
This definition does not recognize the economic, social, and
environmental issues addressed by the agricultural economics
profession.
Actually, the scope of agricultural economics goes well
beyond the farm gate to encompass a broader range of food-
and fiber-related activities.
Because agricultural economics involves the
application of economics to agriculture, we may
define this field of study as follows:
Agricultural economics is an applied social science
that deals with how producers, consumers, and
societies use scarce and natural resources in the
production, processing, marketing, and consumption
of food and fiber products.
Divisions of Economics
The subject of Economics is divided into two parts:
• Microeconomics – studies the choices of individuals
or business entities in response to scarcity
• Macroeconomics – studies the aggregate or
national economy.
A macroeconomic issue might be “how do we reduce the
unemployment rate?”
A microeconomic issue might be “what will happen to the
demand for maize meal if the price increases by R2?”
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Economic Questions
The scope of economics is summarised by these
questions
• What? – what are we producing (goods &
services)
• How ? – Factors of production (land, labour,
capital & entrepreneurship)
• For whom ? – The consumers
Land – rent
Labour – wages
Capital – interest
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Entrepreneurship - Profit
Illustrating scarcity, choice and opportunity
cost: the production
possibilities curve
Production – output of goods and services
Possibility – maximum attainable amount
Frontier – border or boundary
PPF shows the boundary of what is possible and is
used as an illustration in economics to show the
choices facing all countries in producing goods which
use limited factors of production.
Production Possibility Frontiers
O Show the different combinations of goods and services that can be
produced with a given amount of resources
O Any point inside the curve – suggests resources are not being utilised
efficiently
O Any point outside the curve – not attainable with the current level of
resources
O Useful to demonstrate economic growth and opportunity cost
Scarcity is illustrated by the fact that all points to the
right of the curve (such as G) are unattainable.
The curve thus forms a frontier or boundary between
what is possible and what is not possible.
Choice is illustrated by the need to choose among the
available combinations along the curve.
Opportunity cost is illustrated by what we refer to as the
negative slope of the curve, which means that more of
one good can be obtained only by sacrificing the other
good.
Opportunity cost therefore involves what we call a trade-
off between the two goods.
Further applications of the production possibilities curve
We have seen that resources are limited and that choices have to be made.
We illustrated the problems of scarcity, choice and opportunity cost by using a
production possibilities curve, sometimes also called the production opportunity
curve.
Points A, B, C, D, E and F on the production possibilities curve in Figure 1-1
illustrated attainable and efficient combinations of potatoes and fish.
Point G, beyond the curve, illustrated an unattainable combination and point H,
inside the curve, illustrated an attainable but inefficient combination.
The bulging shape of the curve also illustrated increasing opportunity costs: as we
move along the curve more of the one good has to be sacrificed to obtain an extra
unit of the other good.
Production can happen at point G only if there is expansion in the levels of available
resources through economic growth.
Read the definitions of goods
and services and the impact of
technological changes on the
PPF on page 7 and 11 of the
reading materials on efundi.
Economics as Social Science
Economics is a science.
Like any other science, economics involves a systematic attempt
to discover regular patterns of behaviour.
These patterns are used to explain what is happening, to predict
what might happen and to assist policymakers to devise or
choose appropriate economic policies.
Economics is a social science.
It studies the behaviour of human beings, both individually and
as groups.
Other social sciences include sociology, social psychology,
anthropology and political science.
Economists study the behaviour of people in a constantly
changing environment.
Another important difference between economics and a
natural science like physics is found in the nature of
their generalisations.
In Economics, we often say “ceteris paribus” to show that
our assertion in conditional.
But economists often disagree because of:
Differences in their value judgement.
Lack of agreement on facts.
Biasness
They might hold different views about how the
economy operates
They might have different time perspectives.
Positive and Normative
Economics
Distinguishes between two types of Statements:
Positive Statement – (What is?) – this can be
tested by checking it against facts
Normative statement – (what ought to be?) –
cannot be tested
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Summary
We are all part of our economic system –
we are resources, consumers and
producers.
We all make “economic” decisions every
day.
Many economic factors affect our current
and future well being.
It is important to understand our economic
system as well as possible.
Lecture Sources: Text and Miscellaneous
Materials
Next Week
• Demand, Supply and Prices
118-2 27
Thank you for listening, ANY QUESTIONS?
