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Introduction to Agricultural Economics

With

Herman Sampson

WELCOME TO ARE 012

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Microeconomics: ( the “trees”)

Studies economic behavior of individual decision making units such as,

Consumers Resource Owners Business Firms (producers)

in a market economy

At times, micro will study economic behavior at the industry level

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Macroeconomics: (the “forest”)

Studies the aggregate level of economic activity,

Economic system’s value of total

output: GDP Level of National Income Total Level of Unemployment General Price Level of the Economy:

Inflation

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Macroeconomics: (the “forest”)

we will deal with some macroeconomic topics first, then concentrate on microeconomics

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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

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Positive Economics:

Positive: Objective, without emotion or value judgment!

“What is, What was, What will be” economics

Based on probability and statistical methods

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Microeconomics

Normative microeconomics

Positive microeconomics

Macroeconomics

Normative macroeconomics

Positive macroeconomics

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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

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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.

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Private Property Rights

The cost imposed on the third party is very difficult (expensive) for the third party to recover

AKA a “Spillover Cost”

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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

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Negative Externalities

Some Examples:

Seat Belt Crack Down in N.C. (Click It or Ticket)

California Helmet Law for Motorcyclists

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Negative Externalities

Possible Solutions:

– Pass Laws

– Post Bond to assure financial responsibility

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Negative Externalities

Some Examples:

Imperial Foods of Hamlet, N.C. vs. Imperial Sandwich Co. of Goldsboro, N.C.

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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.

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Positive Externalties

The benefit bestowed on the third party is very difficult (expensive) for the third party to recover

AKA a “Spillover benefit”