Introduction to Economics FREC 150 Dr. Steven E. Hastings Introduction to Agricultural and Natural Resources

Who and How? Who is affected by “economics”? How are they (you) affected?

Introduction to Economics Major Topics – Definition of Economics – Important Concepts – Areas of Economic Activity – Types of Economic Questions (Issues) – Sub-disciplines of Economics – Models of Economic Behavior – Overview of our Economic System – Issues in Economics

Examples! Today:

Definition of Economics  Many definitions exist –  Economics is the social science that deals with allocating scarce resources to produce good and services to satisfy human wants as fully as possible. (Hastings)  Economics is a social science that deals with how consumers, producers and societies choose among the alternative uses of scarce resources in the process of producing, consuming and exchanging good and services. (Penson et al.)  Economics is the social science that studies the production, distribution, and consumption of goods and services. (Wikipedia,  All convey the same thing - because of the limited amounts of resources available, society (we) must make choices as to how to use them.

Important Concepts  Economics has a number of important concepts –  Human Wants – unlimited and variable  Resources – used to make goods and services; scarce (amount is limited relative to wants and needs); versatile, and substitutable  Natural and Biological Resources  Human Resources  Manufactured Resources  Technology - “ the recipe” for making goods and services from resources

Important Concepts  Specialization – using resources as efficiently as possible to maximize output  Choices or Making Choices  Opportunity Costs  Distribution (use over time and space)  Equity vs. Efficiency  Marginal Analysis

Benefits of College = Opportunity Costs of Not Going

Important Concepts  Distribution (use over time and space)  Equity vs. Efficiency  Marginal Analysis

Economics Economics can be divided up many ways – – Microeconomics - concerned with individuals or groups of individual in our economic system: consumers, producers, etc. – Macroeconomics – focuses on the system as a whole: taxes, unemployment, aggregate output and income – Or – Positive Economics – focuses on “what is” or “what would be” – Normative Economics – focuses on “what should be” – Major difference is “value judgements” – Or

Economics  Sub-disciplines  Labor Economics, International Trade, Production, etc.  Most relevant to us -  Agricultural Economics - first program at University of Wisconsin in 1909 – an applied social science that deals with how producers, consumers and societies use scarce resources in the production processing and marketing of food and fiber products.  Natural Resource Economics (Resource Economics) – the study of how the flow of goods and services derived from natural resources is, and ought to be managed in today’s world. ( Field, Natural Resource Economics – 2001, page 37)

Economics  Environmental Economics – 1970’s - concerned with a myriad of environmental issues facing society.  Agribusiness Management – 1960’s – “.. agribusiness is a generic term that refers to the various businesses involved in food production, including farming and contract farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing, and retail sales.” (Wikipedia,

Models of Economic Behavior  Economists “love” models or frameworks for analysis (determining cause and effects)!  “In economics, a model is a theoretical construct that represents economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified framework designed to illustrate complex processes, often but not always using mathematical techniques.” (Wikipedia,  Components:  Assumptions – things taken for granted in the model  Variables – income, prices, inputs, etc.  Hypotheses – questions to be answered  Theories – formulations of apparent relationships in the model  Empirical observations – data or facts  Interpretation – sometimes very different!

Models of Economic Behavior  Models can be presented in words, graphs and mathematical equations.  Examples –  Words: American families spend (S) more as their incomes (I) increase.  Math: S = f (I) or S = b * I and b is positive. (Very important today!)  Graph: Spending Income

Economic Theory

Review of Graphs We will do a lot of graphs in this class. Please review pages 10 – 12 of the text. Important concepts are linear and non linear, slope of a line (positive and negative), etc.

A Model of our Economic System  The Circular Flow “model” of resources, products and income and expenditures illustrates how our economy works –  Also see:  What is missing?

The Global Economy

Issues in Natural Resource Economics and Agribusiness – What do you think?

Issues in Natural Resource Economics and Agribusiness – What do you think? New Technologies Land Use Environmental Quality Globalization Food Safety and Quality Effects of Macroeconomic Forces (Recession, Inflation, Interest rates, etc.) – Direct from the headlines!

Food Prices

Direct from the Headlines!

And More!

And Still More!

Summary We are all part of our economic system – we are resources, consumers and producers. We all make “economic” decisions every day. Many economic factors affect our current and future well being. It is important to understand our economic system as well as possible. Lecture Sources: Text and Miscellaneous Materials