Lesson 4 Identifying and Using Macroeconomics and Microeconomics

Next Generation Science / Common Core Standards!

Bell Work / Student Learning Objectives  Define and discuss microeconomics and macroeconomics.  Describe two sub areas of economics that deal with agriculture.  Explain how individuals allocate their resources.  Describe the role of natural resources in agricultural economics.

Terms  Agribusiness  Agricultural economics  Economics  Equilibrium price  Macroeconomics  Microeconomics  Price  Resource Scarcity  Supply Curve

Interest Approach  Each you will receive $100 in cash, and you are free to spend it as you see fit.  Tell the rest of the class what you will spend the money on and why you would spend it in that manner?  Economics is based on choices that individuals make. These choices are based on the perceived benefits people receive from making the choices.  The manner in which one person spends their money may seem foolish. However, the benefits received by spending the money may make the person’s decision sensible to him or her.

Economics  Economics is the science of allocating scarce resources among different and competing choices and utilizing them to best satisfy human wants.  It is a study of how to get the most satisfaction for a given amount of money or to spend the least money for a given want or need.

Resource Scarcity  The study of economics is based upon the principle of scarcity of resources.  Resource scarcity states that the inputs needed to make products are not available in unlimited supply.  This requires people to make choices on how to use the inputs.  The levels at which these choices are made will be described as follows.

Microeconomics  Microeconomics is the study of individual economic choices.  Every person makes choices about how to spend his or her money.  They decide on how to allocate a scarce resource (money) in return for a perceived benefit that the allocation will bring.

Microeconomics  The common denominator that individuals use in making these choices is price.  Any economic system must have a method of establishing prices.  Once these prices are established, individuals are able to make choices about how to allocate their resources.

Macroeconomics  Macroeconomics is the study of the economy as a whole.  It is comprised of all the choices made at the microeconomic level.

Macroeconomics  It looks at the effects of changes in the production of goods and services and employment and how they interact to influence economic performance on a broad scale.  The actions of individuals, businesses and government entities all influence macroeconomics.

Economics  The science of economics has many subareas.  Two of these deal specifically with agriculture. Agricultural economics Agribusiness

Agricultural Economics  Agricultural economics deals with the allocation of scarce resources among different agricultural product choices.  These scarce resources include land, labor, and capital.  Producers need to choose how to allocate these resources in order to produce such agricultural products as livestock, crops, and timber.

Agricultural Economics  The decisions faced by agricultural producers are complex.  Because of government actions, international policies, environmental concerns, and world population, agricultural producers must take a world view in order to make good decisions about what and how much to produce.

Agribusiness  Agribusiness includes all of the activities performed in the three broad categories of the food and fiber system.  Agribusiness is a broader field than agricultural economics.

Agribusiness  It includes not only agricultural economics, but also segments of labor, industrial, business, and consumer economics pertaining to agriculturally related industries and businesses.

Price  The main factor that individuals use in deciding how to allocate their resources is price.  Price is the value or worth placed upon an item.

Price Determination  Price is determined by the quantity that is supplied by the producer of a product and the amount of the product demanded by the consumers of the product.

Equilibrium Price  Equilibrium price is the price at which the quantity supplied equals the quantity demanded.  Since the demand for agricultural products is fairly stable, prices of these products are influenced more by the amounts of agricultural products that are supplied.

Equilibrium Price

Supply  The amount of a product that is supplied can be shown graphically using a supply curve.  The supply curve has the ability to change or shift.  Some of the factors that cause the supply curve of agricultural products to shift are discussed on the following slides.

Factors that affect supply  Production technology—new and better technology allows producers to produce more goods at a lower cost.  New seed varieties enable producers to grow more crops on the same amount of land.

Factors that affect supply  Input price changes - changes in the price of inputs affect the amount of goods produced.

Example of input price change  When heating prices increase, a greenhouse grower must either cut back on the amount of heat provided to a greenhouse or reduce the amount of the greenhouse that is heated.  In either case, the quantity of the product grown in the greenhouse would be adversely affected.

Factors that affect supply  Weather clearly plays a role in the amount of agricultural products produced.  Drought conditions will cause crop yields to be lower.  This equates to less of a crop available for sale.

Factors that affect supply  The effect of expected prices can change the amount of product supplied.  If farmers believe the price of corn is going to be higher than the price of soybeans, they will choose to place more acres of corn in production.  This will increase the supply of corn and decrease the available amount of soybeans available to consumers.

Natural resources and economics  Natural resources include land, water, minerals, and air.  Each type of resource plays an important role in the production of agricultural products.  The nature and extent of the use of these natural resources comprise an important part of the subject matter of agricultural economics.

Land  Land itself is indestructible as far as a particular plot of ground is concerned.  However, its fertility as an agricultural resource is destructible.  But even its loss of fertility for certain crops does not preclude land from being used in other ways, such as for grazing, timber, residential lots, and commercial uses.

Water  Overall, there is a sufficient supply of water resources in the United States.  On a regional basis however, water shortages do occur.  Since agriculture industry is the largest user of water, these shortages can have dramatic effects on agricultural products.

Water  In areas that experience water shortages, the cost to irrigate crops can become cost prohibitive.  This problem will continue to grow as the country’s population expands and continues to become more urban-based.

Minerals  The primary mineral resources that are of importance to agriculture are petroleum, sulfur, nitrates, phosphates, potash, and lime.  There is not an unlimited supply of these resources.

Minerals  Agricultural producers are major consumers of these resources.  Since these minerals are in limited supply, their cost will increase unless new supplies or substitutes are found, or until technology allows them to be used more efficiently.

Air  Fresh air is no longer a free resource.  It has become a scarce resource in many areas due to vehicle exhaust fumes, trash incineration, industrial waste, and other pollutants.

Air  Livestock producers contribute to the reduced air quality.  As the amount of fresh air continues to decline, livestock producers will be faced with more regulations to control their emissions.  These added regulations will lead to increased production costs.

Review / Summary  What is the difference between microeconomics and macroeconomics?  What factors may affect the supply of agricultural products?  How are the prices for agricultural products determined?  How do natural resources affect agricultural economics?

The End!