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Lesson 1.2.1 Agricultural Economics and Extension

The document outlines key principles of agricultural economics, including demand, supply, elasticity, and opportunity cost. It explains how these concepts affect agricultural production decisions and provides examples of calculations related to elasticity and opportunity cost. Additionally, it emphasizes the importance of understanding these principles for effective decision-making in farming.

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theonfandiso702
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7 views33 pages

Lesson 1.2.1 Agricultural Economics and Extension

The document outlines key principles of agricultural economics, including demand, supply, elasticity, and opportunity cost. It explains how these concepts affect agricultural production decisions and provides examples of calculations related to elasticity and opportunity cost. Additionally, it emphasizes the importance of understanding these principles for effective decision-making in farming.

Uploaded by

theonfandiso702
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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 LEARNING OUTCOME AGSSL

1.2Demonstrate understanding of
agricultural economics and extension
PRINCIPLES OF
AGRICULTURAL
ECONOMICS
Performance Criteria
1.2.1

1.2.1. Describe principles of agricultural


economics

RANGE STATEMENT:
Demand & Supply, Opportunity cost &
Law of diminishing urns
Define Agricultural
economics?
The study of how
limited resources are
used to produce
agricultural goods.
Define demand?

 Quantity of a product that


consumers are willing & able
to buy at a specific price &
specific time.

 Lawof demand?
The higher the price of a
commodity the smaller the
quantity demanded (or vice
The law of demand
Determinants of demand

 Priceof the product


 Priceof other goods (substitutes &
complementary)
 Consumer’s tastes & preferences
 Quantity of other goods to meet the
same demand.
 Number of consumers in the market
(population size)
 Increase/decrease in consumers’
income
Elasticity of demand
a measure of the responsiveness
of quantity demanded due to
changes in the price for that
commodity.

 ED
= %∆Q = % change in quantity
demanded
%∆P % change in price

 ED = Q1 - Q 2 x P 1
Elasticity of demand

If the value is greater


than 1, then the demand
is elastic.
If the value is equal to 1,
then the demand is
unitary.
If the value is less than 1,
Elasticity of demand
If the original price of bread falls from P5 to P4 per unit and
the quantity demanded increases from 10 to 13 units, then:-

% change in quantity demanded = (10-13)/10 x 100% =


30%

% change in price = (5-4)/5 x 100% = 20%

Therefore, Ed = %change in quantity demanded


% change in price
= 30%
20%

= 1.5 (then the demand is elastic)


Elasticity of demand

If the original price of bread falls from


P5 to P4 per loaf and the quantity
demanded increases from 10 to 13
loaves, then:-
 ED = Q1 - Q2 x P1
P1 - P 2 Q1

= 10 – 13 x 5 = 3 x 5 = 15 =
1.5
5- 4 10 1 10 10
Elasticity of demand
2015 BGCSE PAPER 1 QUESTION 33

A chicken farmer sold 200kg of meat at a


price of P5/kg but when the price increased
to P6/kg the farmer sold only 150kg.

What is the elasticity of demand for the


chicken meat?
Comment on whether the demand is
elastic or unitary or inelastic.
Demand & supply schedule
for bread
Price Quantity Quantity
demanded supplied
1 600 200
2 500 300
3 450 450
5 400 500
6 380 550
Define supply?
 Quantityof a commodity that
suppliers offer for sale at the
market at a particular price
& time.

Law of supply?
 The
higher the price of a
commodity the higher the
quantity supplied at that time..
The law of supply
Determinants of supply

Market price / own price


Price of related goods
(substitutes & complements
in production)
Costs of production
Government policies
Natural hazards/disasters
Elasticity of supply
a measure of percentage change in
quantity supplied due to percentage
change in its price

ES = %∆Q = % change in quantity


supplied
%∆P % change in price
or

 Es = Q1 - Q2 x P1
P -P Q
Elasticity of supply
Ifelasticity is greater than 1,
then the supply is elastic.

Ifthe elasticity is less than 1,


then the supply is inelastic.

Ifthe elasticity is equal to 1,


then the supply is unitary.
Equilibrium price
Demand & supply
schedules
 Use the demand & supply schedules
to plot the demand & supply curves
on a sheet of graph paper provided.
 On the graph label the ff:-
1) demand & supply curves
2) equilibrium point
3) equilibrium quantity
4) equilibrium price
Law of diminishing returns

ifa variable input increases


while other inputs are held
constant, a point is
eventually reached where
any additional unit of output
for each additional unit of
input, will decline.
Law of diminishing
returns
Law of diminishing returns

 E.g. in maize production on 1ha of


land, the increased application of
fertilizer will increase the yield.

 However, there comes a time where


any more fertilizer added will
produce less yield due to high levels
of toxicity of the fertilizer in the soil.
Diminishing returns
Number of 50kg bags of Maize yield/kg per ha
urea per ha
0 3050
1 3150 100
2 3300 150
3 3475 175
4 3600 125
5 3680 80
6 3730 50
7 3760 30
8 3770 10
9 3760 0
Opportunity cost

Farming is a risky business &


uncertainties affect farming
business.
You can never be sure that your
plans will work.
Many factors outside the
producer’s control, influence
agricultural production
What is opportunity cost?

Valueof the best forgone /


missed alternative product.

Value of the product that was


not produced because
resources were used for a
different purpose.
Importance of opportunity
cost?
Applied when a farmer
makes a choice amongst
many others.
Helps farmers to decide on
which enterprise(s) :-
 would produce the highest
profit?
 to run or to combine?
Opportunity cost
 Ifa farmer decided to produce
maize (profit P800) on a piece of
land instead of sorghum (profit
P600), then they forgo (miss)
the value of sorghum (P600)
which hasn’t been produced.
 Therefore, the opportunity cost
for producing maize is the value
Opportunity cost

A farmer has two options either to buy


a tractor @P50 000 or buy a bull
@P35000. After considering the options
the farmer decided to buy a tractor.

What is the opportunity cost of making


that decision?

Answer:____________
Opportunity cost

A farmer planted sunflowers on 12 ha of


land & obtained income of P5000 per ha.
5 ha of land were then offered for use in
technology transfer trials.
What was the opportunity cost of this
decision?
A P25 000
B P60 000
C P85 000
D P30 000
Opportunity cost

A farmer was faced with a choice to make between


producing one of the following crops: maize with a
profit P800 or rice with profit P12oo, or sorghum with
a profit of P900 or cowpeas with a profit of p700. The
farmer eventually chose to produce cowpeas.
What is the opportunity cost of making that decision?

A P800
B P1200
C P900
D P700
Home work?

 Suppose a vegetable farmer wanted


to grow tomatoes or carrots or a
combination of both crops on the
same field.
 His yield possibilities are shown in
Table 1 below.
 Given that the price of tomatoes is
P18 per kg and that of carrots is P15
per kg, which option will give out
the highest profit?
Table 1: Yields of tomatoes
& carrots
OPTION TOMATOES CARROTS
1 0 15
2 5 14
3 8 13
4 11 12
5 12 11
6 14 10
7 17 8
8 18 6
9 19 4
10 20 0
SOLUTION

OPTION TOMATOES CARROTS PROFIT


1 0 15 225
2 5 14 300
3 8 13 339
4 11 12 378
5 12 11 381
6 14 10 402
7 17 8 426
8 18 6 414
9 19 4 402
10 20 0 360

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