AEC 2713, Intro to Food and Resource Economics
AEC 2713, Intro to Food and Resource Economics 2713
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This 8 page Class Notes was uploaded by Taylor Baker on Monday July 25, 2016. The Class Notes belongs to 2713 at Mississippi State University taught by Danny Barefield in Fall 2016. Since its upload, it has received 124 views. For similar materials see Intro to Food & Resource Econ in agricultural economics at Mississippi State University.
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Date Created: 07/25/16
Intro to Food and Resource Economics Thursday, August 18, 2016 1:45 PM Day 1: August 16, 2016 The definition of economics: • The science which studies human behavior as a relationship between the ends and scarce means which have alternative uses. Chapter 1: The Ten Principles of Economics What is economics? • Persons, households, companies or societies must make many decisions regarding what goods and services are to be consumed. Goods tangible items such as food, gasoline, etc. Services intangibles such as haircuts, banking, etc. "We must make decisions or "tradeoffs" because these goods and services are scarce." Scarcity: • Formal definition: the limited nature of society's resources. Principle 1: People face tradeoffs • Personal or family tradeoffs ◦ food vs. clothing vs. healthcare vs. vacation • Societal tradeoffs ◦ guns vs. butter (defense vs. domestic aid programs) ◦ clean environment vs. high level of income ◦ efficient allocation vs. equitable allocation • efficiency society getting the most it can from resources • equity distributing economic prosperity uniformly among society's members (treating everyone equally) • with government policies these two goals often conflict Principle 2: The cost of something is what you give up to get it • Benefits of college ◦ hopes of a better job with a higher income and quality of life ◦ intellectual enhancement ◦ pleasing your parents • Costs of college ◦ some would say the money spent on tuition, room, board, and books ◦ they would be wrong your time and the value of that time may be the largest cost • Opportunity cost: whatever must be given up in order to obtain some good of service. • In the case of college, the opportunity cost would be the earnings that you could have made. Principle 3: Rational people think at the margin • Rational people people who purposefully do the best they can to achieve their objectives. • Margin or marginal change a small or incremental adjustment to a plan of action. Principle 4: People respond to incentives • Incentive something that induces a person to act. • Gas taxes tend to induce people to drive more fuel efficient cars. • Government regulations often include incentives, but in many cases have unintended consequences. ◦ example law requiring seat belts on cars Principle 5: Trade can make everyone better off • Without trade, you would have to grow your own food, make your own clothes, etc. • With trade, you can concentrate on the things you do best • Without trade, we wouldn’t have bananas, coffee, etc. • 45% of crude oil processed in the U.S. refineries was imported in 2014. Principle 6: Markets are usually a good way to organize economic activity • Planned economy an economy that allocates scarce resources through a centralized planning process. • Market economy an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. ◦ An unusual characteristic of a market economy is that no one looks out for societal wellbeing as a whole Principle 7: Government can sometimes improve market outcomes • Government is needed to enforce the rules and intuitions that enable a market economy to work. • A key role is the enforcement of property rights or the ability of an individual to own and exercise control over scarce resources. • Another example of justified government interference is in the case of a market failure. ◦ Market failure a situation in which a market left on its own fails to allocate resources efficiently. • Market failures can have various causes: ◦ Externalities are the impacts of one entity's actions on the wellbeings of other entities. ◦ Market power is the ability of a single economic entity (monopoly or monopsony) or small group of economic entities (oligopoly or oligopoly) to have a substantial influence on market prices. ◦ Efficient outcomes can lead to sizable disparities in economic wellbeing that can have unforeseen consequences. Principle 8: A country's standard of living depends on its ability to produce goods and services • Standards of living vary greatly between countries. This variation is almost caused by a country's productivity or the quantity of goods and services produced from each unit of labor. ◦ The U.S. standard of living has increased due to increasing productivity over time ◦ Rapidly rising productivity rates in Japan in the 1970s and 1980s resulted in a slowing of income growth in the U.S. • A key question (but not the only one) for policy makers is how a proposed policy will affect productivity. • Keys to increasing productivity: ◦ Well educated workers ◦ Obtain the needed tools or factors of production ◦ Access the best available technology Principle 9: Prices rise when the government prints too much money • "Too many dollars chasing too few goods" leads to inflation. ◦ Inflation is an increase in the overall level of prices in the economy (no such thing as meat inflation or gas inflation) ◦ German example: in January 1921, a newspaper cost 0.30 marks. In November 1922, that newspaper cost 70,000,000 marks. ◦ Growth in the quantity of money causes inflation. Principle 10: society faces a shortrun tradeoff between inflation and unemployment • Short term effects of injecting money in the economy ◦ Increasing the amount of money stimulates spending and the demand for goods and services. Chapter 2: Thinking like an economist • What is economics? ◦ The science of decision making between producers and consumers • Roles of the economist: ◦ Scientist: • Utilize the scientific method to observe natural (and sometimes manmade) experiments in the world • Utilize assumptions to simplify the analysis • Develop models to explain economic reality ▪ A model is used to represent reality, but is not reality. ▪ A basic economic model is the circular flow diagram. ▪ A circular flow diagram looks at the way money, goods, and services move throughout the economy. • Production possibilities frontier: ◦ A graph or equation that shows the combinations of two (or more) goods that the economy can produce given its resources.
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