1 agribusiness library lesson 060001 agribusiness in a free enterprise system

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Agribusiness Library

Lesson 060001 Agribusiness in a Free Enterprise System

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Objectives

1. Describe economics and its three majorcomponents.

2. Define an economic system, and distinguish between the types of economic systems.

3. Identify the characteristics of the American economy.

4. Identify the specialization of agricultural economics.

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Terms agricultural economics allocates capitalism communism economics fascism free enterprise system free resources mixed economic system

needs products resources scarcity services socialism traditional system wants

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What is economics, and what are its major components?

Economics is the science that deals with the production, distribution, and consumption of wealth. (Three questions are commonly asked in reference to economics: What goods should be produced, and how much of each? How should the goods be produced? Who should get what?) There are three different components of economics: scarcity, types of resources, and needs and wants.

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A. Scarcity is a situation where resources are lacking. Economics studies the way society allocates (distributes) its scarce resources. Economics wants to know which individuals or groups receive which goods and services. Not all resources are scarce; readily available resources are called free resources. Shortage and scarcity are not the same.

1. Scarcity exists as a result of limitations of a resource.

2. A shortage is a temporary situation.

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B. Resources are items that are ready for use at any time. Some resources

are considered factors of production, such as land, labor, capital, and management. These

resources are used to make products and to provide services.

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1. Products are the goods produced to meet the needs of consumers. For example, food, clothing, electronics, automobiles, and buildings are products.

2. Services are activities provided to consumers for a fee. For example, opening a checking account for someone, stacking bales of hay in a haymow, or driving someone across town in a taxi are services.

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C. Needs are things required for daily living. Food and shelter are examples of needs. Wants are things that are not necessary for

daily living. Generally, the more people get,

the more they want.

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What is an economic system? What types of economic

systems exist?

Six types of economic systems have been identified by economists: traditional system, capitalism, socialism, fascism, command or communism, and a mixed economic system. The difference between each is the level of control by individuals versus control by the government.

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systems exist?

A. In the traditional system of economics, things are done according to how they have been done in the past. Decisions are based on beliefs handed down for generations.B. Capitalism is an economic system where the

individual owns the resources and can use his or her time and resources as desired. Government involvement is low, so the people must self-regulate themselves. Private ownership allows for competition.

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systems exist?

C. Socialism is an economic system where the public has ownership of all productive resources. In this system, the government is responsible for making all of the production decisions. The state establishes

prices, thus eliminating competition.

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systems exist?

D. Fascism is an economic system where individuals own the resources, but they produce goods as directed by the government. Individuals who support the government have more economic power than

those who do not. This economic system allows the government to have complete control over nearly all aspects of business.

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systems exist?

E. Communism is an economic system where one party controls all means of production. Private individuals have no control over resources. The government exercises complete control of the economy.F. A mixed economic system is a

combination of all of the other systems. The U.S. economic

system is mixed.

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What are the characteristics of the American economy?

There are five characteristics of the American economy (free enterprise system): little or no government control, freedom of enterprise and choice, the right to own property, profit incentive, and chance for competition.

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A. The government’s role in a free enterprise system is to write the rules of trade and to protect the public while keeping the economy in balance. Individuals own and have choices over their resources, but they must act within the limits of the law.

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B. Americans have freedom of choice within the U.S. economic system. Free enterprise refers to an

individual’s freedom to own and control the production of resources.

1. For example, a farmer can purchase a piece of land and keep other individuals off

of it.2. Americans have the right to own private property,

including land, automobiles, and more. (There is no limit on how much you can own, aside from your own budgetary limitations.)

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C. Freedom of choice is the freedom to make decisions about what should be produced. For example, a farmer can decide which crops to grow on his or her land. Sometimes, the government sets safety

standards meant to protect consumers. For example, it is illegal for a farmer to cultivate poisonous plants for sale to consumers.

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D. Profits you make as a result of your private property are yours to keep after reasonable taxation. This represents a profit incentive—the ability to make a profit from the private property you own. Profit drives people to produce more products for others to buy.

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E. Competition is a rivalry among businesses for customers or markets. Businesses survive

based on their ability to produce products competitively. Consumers will be most willing to purchase from the producer with the lowest price when all other attributes of the good or service are the same.

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How is agricultural economics specialized?

Agricultural economics is the application of economic principles to agricultural problems. Therefore, agricultural economics is an applied science rather than a basic science. In a very broad sense, agricultural economics studies the entire food and agricultural industry beginning with the suppliers of inputs to farmers (such as seed, fertilizer, and fuel) and ending with the consumers who purchase food in grocery stores and restaurants.

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A. One area of emphasis of agricultural economics is farm production.

1. For example, agricultural economics is interested in how farmers decide the price they pay for an acre of land.

2. As another example, agricultural economics is interested in the factors that influence the price of outputs (e.g., corn, soybeans,

wheat, and market steers).

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B. Agricultural economics includes agricultural and commodity marketing, agricultural finance, rural development, and agricultural policy.

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Review

What three questions are commonly asked in reference to economics?

What are the six types of economic systems? What is the main difference among those six? What are the five characteristics of the American economy? What term is defined as “the application of

economic principles to agricultural problems.”