chapter two. define economics explain three major components of economics discuss three basic...
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Chapter Two
Define economics Explain three major components of
economics Discuss three basic economic questions Explain six types of economic systems Discuss economics from a historical
perspective
Discuss the role of government versus individuals in the economic system
Describe the characteristics of the American economy
Differentiate between macroeconomics and microeconomics
Differentiate between positive and normative economics
Explain agricultural economics
Several definitions~ the study of allocation of scarce resources
among competing alternatives the study of how individuals and countries
decide how to use scarce resources to fulfill their wants
the study of how society allocates scarce resources and goods
the 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 want
study of how scarce resources are transformed into goods and services to satisfy our most pressing wants, and how these goods and services are distributed
study 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 services
concerned 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?
Scarci
ty
Types of Resour
ces
Wants and Needs
Not enough resources available to satisfy people’s needs or wants
Resources are scarce because of a society’s tendency to demand more than are available
Non-scarce is called a free resource or good
Scarcity is what motivates the study of how society allocates resources
Shortage and scarcity are not the same Scarcity always exists because it
relates to an unlimited or unsatisfied want
Shortages are always temporary often exist after natural disasters occur when imports are dramatically decreased for any reason
Resources are the inputs that society uses to produce outputs
Natural Resources Land
Human Resources Labor
Manufactured Resources Capital
Entrepreneurship Management
Natural resources: Land and the mineral deposits in it constitute a huge section in the ag industry
Human resources: services provided by laborers and managers
for the production of goods and services human resources considered scarce
Manufactured Resources: all the property people use to make other
goods and services is capital machines, equipment, and structures
Entrepreneurship ability of individuals to start new
businesses and to introduce new products and techniques
Four resources (Natural, Human, Manufactured, Entrepreneurship)
Used to produce goods and services Goods are the items people buy Services are the activities done for others
for a fee
Needs are crucial to daily living Food Clothing Shelter Tractor is a need for a farmer
Wants are not crucial to daily living Tractor with a cab, air conditioner, and
radio is a want
Insatiable wants Unlimited or unsatisfied means that human wants cannot be
satisfied no matter how much or how many goods we have
Insatiable wants and scarcity of resources creates economic problems
Efforts 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 Capitalism Fascism Socialism Command (Communism) Mixed
Used to designate political systems as well as economic systems
Major 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 done”
Economic decisions based on customs, religious beliefs, and processes that have been passed from generation to generation
Traditional systems in limited parts of: Asia Africa Middle East Latin America
Free reign over their time and resources Few legal controls by the government Self-regulating system that excludes the
government from economic decisions Depends on will and desires of those
involved in the system Market forces determine prices, assign
resources, and distribute income
Basis is an economic system of public ownership of all productive resources
Government or “state” directs all decisions regarding the utilization of resources by the various sectors of the community
Decisions 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 preferences
Suppresses opposition, censors criticism, and denies some freedoms to individuals
Property is privately owned and businesses control production
Government controls labor, employers, and consumers
Totalitarian system of government Single, authoritarian political party or
body controls government-owned means of production
Government has total control of economic matters and private individuals have none
Adam Smith, father of economics Looking for new directions in economic
policy to deal with the severe economic conditions
Proposed a system completely opposite to the system operating in England
Capitalism, free enterprise, and laissez-faire Individuals can control the economy
without any government interference
Free enterprise system Freedom of private businesses to
organize and operate for profit in a competitive environment
Government interference is necessary only for regulation to protect the public interest and to keep the national economy in balance
Little or no government control Freedom of enterprise Freedom of choice The right to own private property Profit incentive Competition
Freedom of Enterprise individuals are free to own and make
decisions about the factors of production Freedom of Choice
freedom to fail buyers make the decisions about what
should be produced success or failure of a good depends on
individuals freely choosing what they want
Private Property owned by individuals rather than by
government Free to buy whatever you can afford
Profit Incentive desire to make a profit
Study of the economy on a large scale or nationally
Looks at the aggregate (total) performances of all the markets in the national economy
Concerned with the choices made by large subsectors of the economy
Gross domestic product all final goods and services produced within a
country in a given period of time Aggregate supply
total supply of goods and services produced by a national economy during a specific time period
Aggregate demand total demand for goods and services in a
national economy during a specific time period
Competition and market structure competition is determined by the number
of buyers and sellers in a particular market Income distribution
functional distribution division of an economy’s total income goes into
wages and salaries, rent, interest and profit personal distribution of income
groups different populations by the number of people receiving various amounts of income
Deals with matters of fact and questions about how things actually are
Do not contain obvious value judgments or emotional content
“What is, what was, and what probably will be”
Emotional or social philosophy Express 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 only
Without a basis in fact or theory “What ought to be”
A 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 problems
To be a productive agricultural economist, one must first understand basic economic principles
Agricultural economics is an applied science “an 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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