A social science that studies the allocation of scarce to agricultural economics.pdf · A social...
Transcript of A social science that studies the allocation of scarce to agricultural economics.pdf · A social...
A social science that studies the allocation of scarce
resources used to produce the goods and services that
satisfy unlimited consumer wants and needs .
• All raw materials available in nature, i.e. coal, wood,
crude oil, iron, fish, etc.
• The raw materials found in nature are called natural
resources.
• Natural resources become factors of production when we
use them to produce goods.
• Some resources, like wheat and cattle, are renewable.
they can be reproduced.
• Other resources are limited, or nonrenewable, like coal,
iron, and crude oil.
• The amount of natural resources available to a society
has a direct effect on its economy.
• Man-made resources used for further production
(used to produce other goods and services).
• Examples: machines, buildings, tools
• Features:
– Man made
– It raises the productivity of other factors
All the human physical and mental skills that can be used
in the production of goods and services.
• Measured in terms of time (man hour)
• Labour supply = no. of workers x no. of working hours
per worker
• Factors affecting labour supply:
– Size of population
– Size of working population
– No. of working hours
Labour Supply:
– population growth (by natural growth or immigration)
– monetary rewards
– import of labour from other countries
– retirement age (e.g. from 65 to 70)
– school leaving age (e.g. from 17 to 16)
• Measured in terms of output per unit of labour
Average labour productivity = average output per man hour
April 2016 Firm A Firm B
Number of working hours per worker 240 180
Units of output 7200 6400
Average labour productivity 30 35.6
Firm B has a higher labour productivity than firm A
• Better education and training
• Other factors of production (quantity & quality)
• Better management or organization
• Better working conditions
• Greater fringe benefits (housing allowances, medical care,bonus, meal.)
• Geographical mobility: the case at which labor can move
from one working place to another.
• Occupational mobility: the case at which labor can change
from one type of job to another.
Also known as Management.
The ability to organize production, innovate, and take
risks. Ability to collect information, and analyze that
information to solve problems or create opportunities.
• Takes the initiative in combining land, labor, and capital
in order to produce a good or service.
• Undertakes basic decision-making for the business.
• Takes risk of losing money or going bankrupt.
• Forms a business and introduces new products and
techniques of production.
• Land receives Rent
• Capital receives Interest
• Labor receives Wages
• Management receives Profit
• Factors of production are used to produce things that
people want.
• These "things" are known as commodities. Commodities
consist of goods and services.
Economic Goods: Tangible items in which the quantity demanded by
society exceeds the quantity available at a price equal to zero.
Qd > Qs @ P = 0
Free Goods: Tangible items in which the quantity available
exceeds the quantity demanded at a price equal to zero.
Qd < Qs @ P = 0
Consumer Goods: Are economic goods used directly by
consumers to generate satisfaction. (Durable Goods, Non-
durable Goods).
Capital Goods: Man-made goods used to produce consumer
goods.
Services are intangibles such as mowing, education, tractor
repair, landscape planning, hair cuts, etc.
• Scarcity forces every economic system, every
business, every individual to make choices.
• A decision to produce one commodity frequently
implies a decision to produce less of another
commodity (production possibilities curve).
Scarcity simply means that there is not enough factors of
production in the world to create all of the goods and
serv ices that peop le des i re a t a Price = 0 .
How will these scarce resources be used ?
(1) Will we use crude oil to make gasoline, plastics, fertilizers
etc.
(2) Use fertilizer to raise corn, soybeans, tobacco, cotton etc.
(3) Use corn to feed people, feed hogs to produce pork, feed
beef cattle to produce beef, feed dairy cattle to produce
milk.
• Often, the decision to produce a particular
commodity may lead to the decision to completely
stop production of another.
• In other words, some tradeoffs must be made since
we do not have the resources to produce the variety
and quantity of commodities we would like to
produce.
Whenever resources are used for any activity, the user is
trading off the opportunity to use those resources for
other things.
The value of the trade-off is represented by the
opportunity cost.
Opportunity Cost = Value of best foregone alternative
• Opportunity cost of any choice - What we forego when we make that choice
Opportunity cost graphically:
The production possibilities curve (PPC)
represents all possible combinations of total
output that could be produced assuming
• There is a fixed amount of productive resources for the
time period
• The efficient use of those resources
• Resources are fully employed
• Production is for a specific time period
• Technology does not change over the time period
Each point on the production
possibilities curve depicts an
alternative mix of output
The PPC is bow outward
because of the law of
increasing relative cost
Point R lies outside the PPC
and is impossible to achieve
during the time period
assumed.
If the nation is at point
S, it means that its resources
are not being fully utilized.
We have unemployment.
Point S is called an
inefficient point, which
is defined as any point
below the PPC.
Production possibilities curve illustrates
two essential principles:
1-Scarce resources
2-Opportunity costs
Attainable
Unattainable
• Show the different combinations of goods and
services that can be produced with a given amount of
resources.
• No „ideal‟ point on the curve.
• Any point inside the curve – suggests resources are
not being utilised efficiently.
• Any point outside the curve – not attainable with the
current level of resources.
• Useful to demonstrate economic growth and
opportunity cost.
• The reason that we face the law of increasingrelative cost (which causes the PPC to bowoutward) is that certain resources are better suitedfor production of some goods than they are forother goods.
• Specialization
– Method of production in which each firm concentrates on a
limited number of activities
• Exchange
– Practice of trading with others to obtain what we want
• Allows for
– Greater production
– Higher living standards than otherwise possible
• Agricultural Economics is a branch of economics in which
the principles and methods of economics are applied to
the agriculture industry.
• The problem of the scarcity has the vital importance in
agriculture economics too because Land is limited and it
is impossible to increase land with the help of human
efforts. Keeping this fact in mind, the land should be
utilized in such a way that we obtain the maximum
production from it that result in the satisfaction of human
being.
The agriculture sector has the following main areas:
1. Crops Production
2. Fruits Production
3. Forestry
4. Live stocks
5. Poultry farming
6. Bees Keeping
7. Fisheries
Agriculture sector is different than industrial sector in various
ways. In the coming slides we will compare the agriculture and
Industrial sector which lead us to the conclusion that
agriculture economics should be studied as a separate
discipline.
• In industrial production, from a small piece of land, with the
help of huge investment, plant is constructed that can
produce bulks of production on every production floor. But
in agriculture beside the Labor and Capital, a large area of
land is required to increase the agriculture production.
Proportion of Land use
• Various agricultural products have common supply such as
with wheat the supply of straw, with meat the supply of skin
increases. But in industry it is not common.
Common Production
• The supply of industrial products can change with the
change in prices in the market, but the supply of agricultural
products can not be increase. It has an inelastic supply.
Inelastic Supply
• The goods produced by agriculture and industrial
sectors are different. The agricultural products are
mostly perishable while industrial products are mostly
durable. Hence, the need for a separate study on the
part of agriculture economics rise.
• The weather change has a serious effect on the
agricultural production and that is the reason due
to which agricultural production is either surplus or
shortage while industrial production is free from the
weather changes.
• In agriculture, the labor are unorganized. They get wages
below the subsistence level. Hence the financial position of
labor is very weak.
• On the contrary, the industrial labor is well-organized. They
get better wages. They formulate their unions.
• Because of non-existence of trade unions in agri sector, the
relationship between the land-owner and the tillers remains
stable, though the agri workers get lower wages.
• Generally, the government of LDCs are crazy to
industrialize themselves as soon as possible. For this
purpose, they give certain facilities to the industrialists.
Moreover, the industrial sector is provided benefits in the
form of cheaper loans, tax holidays, better means of
transportation and communication. In such situation, the
problems and issues of agri sector will be different from
industrial sectors. Therefore, to deal with them, agriculture
economics will be needed.
Content
Introduction.
The objectives.
The Methodology.
World crude oil reserves, production and price develpment.
Saudi Arabia crude oil production.
The impact of crude oil price fluctuations on Saudi Arabian
economy.
Conclusions.
Introduction
Contemporary society has been built on crude
oil.
Crude oil is essentially vital to the world
economy.
It is not just the non-renewable resource, but as
well the "strategic resource”.
A- Households supply
resources in the resource
market and demand goods and
services in the product market
B- Firms supply goods and
services in product market and
demand resources in the
resource market
C- Money flows in resource
market determine wages,
interest, rents, and profits
which flow as income to
households
D- Product markets determine
the prices for goods and
services which flow as revenue
to firms
• The resource market coordinates the actions of businesses demanding resources and households supplying them in exchange for income.
• The loanable funds marketbrings net household saving and the net inflow of foreign capital into balance with the borrowing of businesses and governments.
• The foreign exchange marketbrings the purchases (imports)from foreigners into balance with the sales (exports plus net inflow of capital) to them.
• The goods & services marketcoordinates the demand for and supply of domestic production (GDP).
There are four kinds of policy that the government has used
to influence the macroeconomy:
1. Fiscal policy
2. Monetary policy
3. Growth or supply-side policies
4. Trade policy
Real-Nominal PRINCIPLE
What matters to people is the real value of
money or income - its purchasing power - not
the “face” value of money or income.
• The term "real" means adjusted for inflation.
• Nominal GDP is a measure of national output based on the
current prices of goods and services. It is also called “money GDP”.
• Real GDP is a measure of the quantity of final goods and services
produced, obtained by eliminating the influence of price changes
from nominal GDP.
• Inflation is an increase in the overall price level of goods
and services in an economy over a period of time.
• When the general price level rises, each unit of currency
buys fewer goods and services (purchasing power is falling).
• Due to inflation the value of 1 USD today is more than 1
USD in the future.
• Inflation is adjusted for by using real values instead of
current values.
• Provides incentives ... to consumers, producers, labor and owners of productive resources
• Allocate resources ... alternative ways to provide goods and services
Rate at which one currency may be converted into
another. The exchange rate is used when simply
converting one currency to another (such as for the
purposes of travel to another country), or for engaging in
speculation or trading in the foreign exchange market.