Introduction to Agricultural & Resource Economics
Introduction to Agricultural & Resource Economics ARE 201
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This 3 page Class Notes was uploaded by Norbert Terry on Thursday October 15, 2015. The Class Notes belongs to ARE 201 at North Carolina State University taught by M. Walden in Fall. Since its upload, it has received 6 views. For similar materials see /class/223763/are-201-north-carolina-state-university in Agricultural & Resource Econ at North Carolina State University.
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Date Created: 10/15/15
Lecture 1 What Is Economics I The Economic Problem There are scarce resources but unlimited potential uses of those resources This scarcity forces tradeoffs between resource use Who is to decide how to allocate scarce resources Who decides what is produced and who gets what Alternatives Command Economy A central authority decides what is produced and who gets what Market or Price Economy Relies on individual selfinterest to decide how resources are used N E Prices are attached to alternative uses communicating their value and these prices guide resource allocation in a totally uncoordinated decentralized way the quotinvisible handquot Prices are a quotsignalquot Incentives are key If a business can make a pro t selling something they ll do it And if they can make more pro t they ll want to do more Conversely the higher the price of something the more costly it is for buyers so buyers will want to use less and conserve Example 1 Food housing and cars are needed to live and function in today39s society But the government central authority doesn39t control the production of these vital products Instead farmers produce food builders construct houses and auto companies make cars because they earn pro ts by doing so And the more pro t they make the more they ll want to produce Example 2 What if a hurricane wipes out many of the orange trees in Florida Less orange juice is available How is it decided who gets it In a command economy some central authority would In the market economy orange juice becomes more valuable so its price rises This causes buyers to collectively use less Example 3 Where to live Apartments and houses that are closer to NCSU cost more per square foot because faculty and students save commuting time and money if they39re close to the campus Conversely apartments and houses farther away from campus cost less per square foot because they don t save commuting time and money So for a central amount of money budgeted for housing faculty and students must decide which they value most closeness to campus or more space to live in II We Will Talk About the Market or Price System in this Course The two fundamental concepts in this system are Demand shows how much buyers purchase of something product or service as its price per unit varies result buy more at lower price buy less at higher price Supply shows how much producers make and sell of something product or service as its price per unit varies result make and sell more at higher price make and sell less at lower price The quotcoming togetherquot of demand and supply determines how much is produced and bought and at what price For 39 quot 39 39 39 and 39 39 39 is really about bene ts and costs Compare the bene t from buying a new shirt to the cost of not using that money in another way Or the owner of a pizza restaurant compares the bene t on pro ts of hiring more delivery persons vs adding more tables and chairs in the store The cost of anything is the value of what you can t buy with those same resources economists call this opportunity cost It should be clear that economics applies to individuals or households and businesses It also applies to government decisions But there are three problems for the government application politicians aren39t using their own money they may look at bene ts and costs differently than taxpayers politicians can divide bene ts and costs have one group pay the costs while another gets the bene ts politicians have short time horizons often just until the next election or end of their term so sometimes they try to accelerate the bene ts and delay the costs N E III Microeconomics the economics applied to households and businesses and their their interaction in the market market is simply where buyers and sellers come together Macroeconomics the economics applied to the national economy and government economic policy IV Three Common Criticisms of Market Economics 1 Those with more money resources can get more It s true that someone ea1ning 100000 a year can buy more than someone earning 10000 So is this fair One answer is quotyesquot ifthe person earning 100000 a year did so because society valued what they did more than the person earning 10000 Also most societies do redistribute some amount of income from the rich to poor in Us 500 billion annually 2 Money is the only thing that matters in a market economy Not really Money is just the convenient and easy way we measure resources But if something can39t be measured with money it doesn t mean it39s worthless 3 In a market economy what s to prevent businesses from charging extremely high prices to buyers and making huge pro tsgt Answer Competition more on this later V Other Key Economic Principles 1 Bene ts of something rise or costs fall get more of it Bene ts of something fall or costs rise get less of it 2 The ultimate impact of economic actions may not be seen immediately 3 Economics is not about money it s about choice Money is just a convenient measuring tool 4 Trade is key we specialize and trade Trade is a quotpositive sum gamequot only occurs if both sides buyer and seller see a net bene t at the time 5 Competition is buyer39s best friend if several rms are competing for the consumers business this will keep costs down and quality up 6 The value of a resource depends on when in time it occurs time value of money 7 The economic future is hard to predict
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