Chapter Two.  Define economics  Explain three major components of economics  Discuss three basic economic questions  Explain six types of economic

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Text of Chapter Two.  Define economics  Explain three major components of economics  Discuss three...

  • Chapter Two

  • Define economicsExplain three major components of economicsDiscuss three basic economic questionsExplain six types of economic systemsDiscuss economics from a historical perspective

  • Discuss the role of government versus individuals in the economic systemDescribe the characteristics of the American economyDifferentiate between macroeconomics and microeconomicsDifferentiate between positive and normative economicsExplain agricultural economics

  • Several definitions~the study of allocation of scarce resources among competing alternativesthe study of how individuals and countries decide how to use scarce resources to fulfill their wantsthe study of how society allocates scarce resources and goodsthe science of allocating scarce resources (land, labor, capital, and managements) among different and competing choices and utilizing them to best satisfy human wants

  • study of how to get the most satisfaction for a given amount of money or to spend the least money for a given need or wantstudy of how scarce resources are transformed into goods and services to satisfy our most pressing wants, and how these goods and services are distributedstudy of the decisions involved in producing, distributing, and consuming goods and services

  • social science that studies how consumers, producers, and societies choose among the alternative uses of scarce resources in the process of producing, exchanging, and consuming goods and servicesconcerned with overcoming the effects of scarcity by improving the efficiency with which scarce resources are allocated among their many competing uses, so as to best satisfy human wants

    What is YOUR definition?

  • ScarcityTypes of ResourcesWants and Needs

  • Not enough resources available to satisfy peoples needs or wantsResources are scarce because of a societys tendency to demand more than are availableNon-scarce is called a free resource or goodScarcity is what motivates the study of how society allocates resources

  • Shortage and scarcity are not the sameScarcity always exists because it relates to an unlimited or unsatisfied wantShortages are always temporaryoften exist after natural disastersoccur when imports are dramatically decreased for any reason

  • Resources are the inputs that society uses to produce outputs

    Natural ResourcesLandHuman ResourcesLaborManufactured ResourcesCapitalEntrepreneurshipManagement

  • Natural resources:Land and the mineral deposits in itconstitute a huge section in the ag industry

    Human resources:services provided by laborers and managers for the production of goods and serviceshuman resources considered scarce

  • Manufactured Resources:all the property people use to make other goods and services is capitalmachines, equipment, and structures

    Entrepreneurshipability of individuals to start new businesses and to introduce new products and techniques

  • Four resources (Natural, Human, Manufactured, Entrepreneurship)Used to produce goods and servicesGoods are the items people buyServices are the activities done for others for a fee

  • Needs are crucial to daily livingFood ClothingShelterTractor is a need for a farmer

    Wants are not crucial to daily livingTractor with a cab, air conditioner, and radio is a want

  • Insatiable wantsUnlimited or unsatisfiedmeans that human wants cannot be satisfied no matter how much or how many goods we haveInsatiable wants and scarcity of resources creates economic problemsEfforts to solve these problems are the basis of the discipline of economics

  • What goods should be produced, and how much of each?answered every time people buy goods

    How should these goods be produced?answered by agribusiness producers or manufacturers according to what yields greatest profits

    Who should get what and how much?answered by determining who has the greatest needs, wants, and ability to pay

  • Six Types:Traditional CapitalismFascismSocialismCommand (Communism)MixedUsed to designate political systems as well as economic systemsMajor distinction between these classifications?degree of control by private individuals versus the group represented by government

  • Things are done the way they have always been doneEconomic decisions based on customs, religious beliefs, and processes that have been passed from generation to generationTraditional systems in limited parts of:AsiaAfricaMiddle EastLatin America

  • Free reign over their time and resourcesFew legal controls by the governmentSelf-regulating system that excludes the government from economic decisionsDepends on will and desires of those involved in the systemMarket forces determine prices, assign resources, and distribute income

  • Basis is an economic system of public ownership of all productive resourcesGovernment or state directs all decisions regarding the utilization of resources by the various sectors of the communityDecisions are therefore made on a centralized basis by government planners

  • System in which productive property, though owned by individuals, is used to produce goods that reflect government or state preferencesSuppresses opposition, censors criticism, and denies some freedoms to individualsProperty is privately owned and businesses control productionGovernment controls labor, employers, and consumers

  • Totalitarian system of governmentSingle, authoritarian political party or body controls government-owned means of productionGovernment has total control of economic matters and private individuals have none

  • Adam Smith, father of economicsLooking for new directions in economic policy to deal with the severe economic conditionsProposed a system completely opposite to the system operating in EnglandCapitalism, free enterprise, and laissez-faireIndividuals can control the economy without any government interference

  • Free enterprise systemFreedom of private businesses to organize and operate for profit in a competitive environmentGovernment interference is necessary only for regulation to protect the public interest and to keep the national economy in balance

  • Little or no government controlFreedom of enterpriseFreedom of choiceThe right to own private propertyProfit incentiveCompetition

  • Freedom of Enterpriseindividuals are free to own and make decisions about the factors of productionFreedom of Choicefreedom to failbuyers make the decisions about what should be producedsuccess or failure of a good depends on individuals freely choosing what they want

  • Private Propertyowned by individuals rather than by governmentFree to buy whatever you can afford

    Profit Incentivedesire to make a profit

  • Study of the economy on a large scale or nationallyLooks at the aggregate (total) performances of all the markets in the national economyConcerned with the choices made by large subsectors of the economy

  • Gross domestic productall final goods and services produced within a country in a given period of timeAggregate supplytotal supply of goods and services produced by a national economy during a specific time periodAggregate demandtotal demand for goods and services in a national economy during a specific time period

  • Competition and market structurecompetition is determined by the number of buyers and sellers in a particular marketIncome distributionfunctional distributiondivision of an economys total income goes into wages and salaries, rent, interest and profitpersonal distribution of incomegroups different populations by the number of people receiving various amounts of income

  • Deals with matters of fact and questions about how things actually areDo not contain obvious value judgments or emotional contentWhat is, what was, and what probably will beEmotional or social philosophyExpress a hypothesis that can be analyzed and evaluated

  • Higher interest rates will cause a rise in the exchange rate and an increase in the demand for imports.Lower taxes may stimulate and increase in the active labor supply.A nationwide minimum wage will probably cause a contraction in the demand for low-skilled labor.

  • That person is hungry.What is the cost of feeding that person? What benefit accrues to you or society if that person is not fed? What is the cost of not feeding that person? What is the benefit of not feeding that person?Positive economics tries to answer such questions objectively, by doing what is called cost-benefit analysis.

  • Subjective statements based on opinion onlyWithout a basis in fact or theoryWhat ought to beA national minimum wage is undesirable because it does not help the poor and causes higher unemployment and inflation.The national minimum wage should be increased as a method of reducing poverty.Protectionism is the only good way to improve the living standards of workers whose jobs are threatened by outsourcing and imports.

  • application of economic concepts to agricultural problemsTo be a productive agricultural economist, one must first understand basic economic principlesAgricultural economics is an applied sciencean applied social science dealing with how humans choose to use technical knowledge and scarce productive resources such as land, labor, capital, and management to produce food and fiber and to distribute if for consumption to various members of society over time


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