Foundations in Aquaculture EconomicsDr. Craig Kasper
OutlineObjectives: provide a basic understanding of the microeconomic factors which influence farm establishment, production and sales of aquatic products
Application of economic principles to a practical setting
The Next Few WeeksWe will focus heavily on Aquaculture Economics
introduction to economicsbusiness planning/financial analysismarketing
Foundations of Agriculture EconomicsLets face it. Our complex world always changes!
Globalization, industrialization, and mechanization has all contributed to convenience and speed that only Danica Patrick could appreciate!
Foundations of Agriculture EconomicsProduction methods in agriculture have changed dramatically.
Ag. Econ Intro.Aquaculture is no stranger to this either (ponds, raceways, cages, recirc, etc.)
Managers of todays farms must be efficient and knowledgeable with respect to economic, marketing, and financial issues.
To be competetive, you must think and act globally.
Aquafarmers must master technical aspects of production and economics to survive in todays world.
Understanding EconomicsBy understanding how your resources can be used to satisfy the needs and desires of people, you can appreciate economics.
We must be aware of individual consumers and producers needs.
All our resources are finite!
Most goods and services are also finite hence, the continuing need for green technology devleopment.
Scarcity: The Bottom LineScarcity: finite resources cannot supply all the goods needed to satisfy affluence (lust).
REM: If we had it all, no one would be interested in use of resources (or anything Gore, Obama or anyone else has to say).
Guess what? If scarcity doesnt exist, everything is free!
To Avoid ScarcityAllocation: partitioning something, and/ or providing an alternative use
Best use must agree with individual and social objectives
Scarce resources must be partitioned between competing uses (fish meal: swine, chicken, aquaculture).
Choose, but choose wisely (Knight, Indiana Jones and the Last Crusade)Its nearly impossible to placate all your desires, you must choose.
Even if human action was rational, you would likely satisfy your wants before your needs (impulse).
Choice is fundamental to economics
I dont have time to go cut the weeds at the ponds, Id better go feed the fish!
ChooseThus, when you dont want to do something, you generally choose to do something you like instead (shopping or fishing vs. homework or studying for exams).
Time is also finite! One must choose how to spend it (Human nature??) 1440 Rules!!
We have the greatest freedom on how we spend our income (and that isnt much freedom).
For example: Manager asks How much do I invest in technology vs. How much do I save for a rainy day?
Also: people often say they cannot afford to buy something when they really mean they prefer to buy something else.
GoalsGoals: ends, or objectives may seem infinite
We must prioritize to achieve them.
Thus, economics might be viewed as the science of choice-making.
It considers allocating finite resources between competing alternatives!
Homework Assignment #2
As potential aquaculturist, make a short list (10 items) of resources and what are some competing alternatives (i.e., how else could you use these resources)?
Due next week!
How to Achieve a Goal: Scale of PreferenceRem: Economics assumes we are rational and make equally rational decisions!
However, we usually make the one yielding the greatest satisfaction!
Implies all have our own preference scale!
Preference scale: A list of unsatisfied wants arranged in order of preference.
Scales of PreferenceExample: Buy feed and/or chemicals?
Oops! We have a budget!
Example: What if we throw in politics? Deciding between funding a large-scale fisheries project vs. a large-scale aquaculture project?
Reality: You may find that your decision must be made among an infinite number of combinations, not just two alternatives.
Production Transform CurveB2A1OSlope of CurveUnattainableE2E1ABAttainableInvestment in AquacultureInvestment in FisheriesProduction Possibility FrontierB1A2
Opportunity CostsSince the production transformation curve slope is concave downwards, it illustrates the cost of increasing the expenditure on one commodity in terms of sacrificing consumption (purchase) of other goods
It is the value of one item in terms of the other (opportunity cost)
Opportunity cost: money lost by producing item A instead of item B.
Part 2: Types of EconomicsEconomics consists of macroeconomics and microeconomics
Microeconomics (Micro-): the study of specific economic units that make up an economic sector.
Focus is on a single unit (or an aggregation of units), always part of a whole
Studies individual farms, their relationships to each other, and to the industry (economy) as a whole
Macroeconomics (Macro-): entire economy is considered.
How does an economic system deal with inflation, depression and unemployment.
Example: Issues in aquaculture relative to the rest of the economy
Macro-: forest; micro-: trees
Macro- ToolsMacro- says whether (or not) a country is progressing towards satisfying its populations diverse needs
Therefore, must know the volume of goods and services that can be produced
Example: GNP, gross national product
GNP = total market value of goods/services produced by a countrys economy in one year, including unsold inventories
Positive and Normative Economics: an insightThe logic of economics is intended to be used to analyze problems of individual and social significance
Theory is of no value if it does not lead to useful analyses of real problems
Policy decisions: recommendations for the best solution
The best policy solution for a given problem will depend upon the goal of the decision makers
Economists are not the decision makers, politicians are... (hmmproblem?)
Positive EconomicsPositive Economics: describes the manner in which the economic unit functions
It deals with the what is, apart from value judgements about what should be
Positive economics describes the functioning of a firm without attaching statements of good or bad (it worked, or it did not...very black and white!)
Disagreements are resolved by logical thought and by appealing to the facts
Positive EconomicsEconomists may study the properties of a particular market - how prices and quantities are determined, the nature of the buyers and sellers, efficiency of the market.
Disagreements are likely.
However, differences can be resolved by acquiring more information on the market (data driven)
Appearing on TV, blasting the other economist, making value judgements falls in the realm of normative economics
Normative EconomicsNormative economics is prescriptive (rigid, dictatorial)
What oughta be and not what is.
Imagine a scenario in which manufacturing jobs are being lost while jobs in the fields of nursing and computer programming are being gained. An economist or politician may claim that the loss of the particular class of jobs in manufacturing erodes the "foundation" of a country.
Disagreements in normative economics generally cannot be resolved by an appeal to the facts.
Why? Different premises between economists.
Everyone has varying preferences derived from many philosophical, social, and cultural backgrounds.
Hence: We all have our own set of goals, so do firms.
Positive and Normative EconomicsPositive economics can make important contributions to normative matters because of its descriptive nature (Using the facts, no way?!?)
Positive economics identifies and quantifies the relationships with individual economic units, such as farms.
It serves as a basis for making normative judgements, and comparing one economic policy to another
Part 3: Economic SystemsEconomic systmes (types) are based on the method of resource allocation
Political systems economic systems
Judged by which system produces the highest standard of living available that resources and technology will permit
Insures that the benefits of producing certain types of goods and services are available to maximize welfare
example: Figure 2-2, Jolly and Clonts, p30
Simplified Economic SystemSPEND MONEYPROVIDE GOODS/SERVICESHOUSEHOLDSFIRMSPROVIDE LABOR,MGMT, SOMETIMES LAND, ETC.FIRMS PAY THE RENT, PROVIDE WAGES, HOUSEHOLDS GAIN INTEREST, PROFIT
Market EconomyCompetitive market: prices are determined by supply and demand
Pure market or competitive economy exists when entire market is characterized by supply and demand.
Characteristics:Consumer rules! and pays more for products in greater demand, less for those in lesser demand;(Full-sized trucks)
Market EconomyResources efficiently allocated and conditions (survival) force producers to be efficient by selling at market price (ornamental fish)
Economic freedom is assured: a pure market economy requires high level of individual freedom of enterprise, decisions as to what, how and for whom items are produced lies in hands of producers
Planned economy: opposite of market economy (supply and demand do not dictate entire market, price or production)