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Introduction to Agricultural EconomicsWith

Herman Sampson

WELCOME TO ARE 201

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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 economyAt 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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U.S. Real GDP Growth Quarter to Quarter US Bureau of Economic Analysis

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Rate

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%)

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National Unemployment RateBureau of Labor Statistics Data

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Cap

acity

Util

izat

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e

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Industrial Capacity Utilization RateJanuary 1990 to December 2008

U.S. Federal Reserve Data

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acity

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Industrial Capacity Utilization RateJanuary 2006 to December 2011

U.S. Federal Reserve Data

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More Industrial Capacity Utilization Rates and Correlation with Recessions

http://www.economytrack.org/capacity.php

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Perc

ent I

ncre

ase

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Work-Force Productivity:Output per Hour Worked

Bureau of Labor Statistics

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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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MicroeconomicsNormative microeconomicsPositive microeconomics

MacroeconomicsNormative macroeconomicsPositive macroeconomics

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Macroeconomics1. Fiscal Policy:Govt. tax and spend policies

2. Monetary PolicyManipulation 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”