1 Introduction to Agricultural Economics With Herman Sampson WELCOME TO ARE 012

2 Microeconomics: ( the “trees”) Studies economic behavior of individual decision making units such as, u Consumers u Resource Owners u Business Firms (producers) in a market economy At times, micro will study economic behavior at the industry level

3 Macroeconomics: (the “forest”) Studies the aggregate level of economic activity, u Economic system’s value of total output: GDP u Level of National Income u Total Level of Unemployment u General Price Level of the Economy: Inflation

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9 Macroeconomics: (the “forest”) we will deal with some macroeconomic topics first, then concentrate on microeconomics

10 Normative Economics: Normative: subjective, value laden, emotional “What ought to be” economics Rx and/or Policy oriented Hear a bunch of normative economic statements during political elections

11 Positive Economics: Positive: Objective, without emotion or value judgment! “What is, What was, What will be” economics Based on probability and statistical methods

12 Microeconomics Normative microeconomics Positive microeconomics Macroeconomics Normative macroeconomics Positive macroeconomics

13 Macroeconomics 1. Fiscal Policy: Govt. tax and spend policies 2. Monetary Policy Manipulation of the money supply by the Federal Reserve system to affect short-term interest rates and control inflation

14 Private Property Rights “Negative Externality”: When you produce or consume a commodity or service within your private property rights that imposes a cost on a third party not directly involved in the market transaction.

15 Private Property Rights The cost imposed on the third party is very difficult (expensive) for the third party to recover AKA a “Spillover Cost”

16 Private Property Rights Laws are often enacted by legislative bodies that constrain private property rights in order to rectify negative externalities, or at least reduce the cost to third parties in recovering damages

17 Negative Externalities Some Examples: Seat Belt Crack Down in N.C. (Click It or Ticket) California Helmet Law for Motorcyclists

18 Negative Externalities Possible Solutions: – Pass Laws – Post Bond to assure financial responsibility

19 Negative Externalities Some Examples: Imperial Foods of Hamlet, N.C. vs. Imperial Sandwich Co. of Goldsboro, N.C.

20 Positive Externalities When you produce or consume a commodity or service within your private property rights that bestows a benefit on a third party not directly involved in the market transaction.

21 Positive Externalties The benefit bestowed on the third party is very difficult (expensive) for the third party to recover AKA a “Spillover benefit”