Principles of Agricultural Economics Flashcards

Comprehensive flashcards covering introductory micro and macro economics principles applied to agricultural economics, divisions of economics, market structures, national income, and inflation.

Economics

Popularly known as the "Queen of Social Sciences," it studies economic activities concerned with the efficient use of scarce means to satisfy the unlimited wants of man.

Consumption

A division of economics under the traditional approach meaning the destruction of utility or use of commodities and services to satisfy human wants.

Production

Defined as the creation of utility; it involves transforming tangible and intangible inputs into goods or services.

Exchange

The transfer of goods from one person or country to another, leading to an increase in welfare through the creation of higher utilities.

Distribution

The sharing of produced wealth among factors of production, categorized as personal distribution or functional distribution (land, labour, capital, and organisation).

Micro-Economics

Also known as "price theory," the term was coined by Ragnar Frisch in $1933$; it analyzes the behavior of small decision-making units like firms, industries, or consumers.

Macro-Economics

Derived from the Greek word "macro" (large), it analyzes aggregates pertaining to the entire economy, such as national income, $GDP$, and total employment.

Deductive Method

A method of economic investigation involving reasoning from the general to the particular; also known as the abstract or analytical method.

Inductive Method

A method of economic investigation involving reasoning from particulars to the general based on experiments and observations; also known as the historical or realistic method.

Positive Economics

Economics concerned with "what is," describing economic behaviors without value judgments.

Normative Economics

Economics concerned with "what ought to be," evaluating behaviors with moral or value judgments.

Agricultural Economics

An applied field of science in which principles of choice are applied to the use of scarce resources like land, labour, and capital in farming and allied activities.

Agricultural Production Economics

An applied field concerned with the selection of production patterns and resource use efficiency to optimize the objective function of the farming community.

Farm Management

Defined by J. N. Efferson as the science dealing with the organization and operation of the farm for efficiency and continuous profits.

Macro Finance

Deals with raising funds for agriculture as a whole and the lending procedures of agricultural institutions at the aggregate level.

Micro Finance

Deals with financing individual farm business units and how farmers allocate borrowed credit among alternative uses.

Agricultural Marketing

Comprises all operations and agencies involved in moving farm-produced foods and raw materials from the farm to the final consumer.

Free Goods

Gifts of nature that exist in plenty and can be used as much as liked without payment, such as air or sunshine.

Economic Goods

Scarce, generally man-made goods that are available only on payment; they are synonymous with wealth in economics.

Mono Period Goods

Goods that can be used only once in the production or consumption process, such as seeds or food.

Poly Period Goods

Goods that can be used repeatedly over several periods, such as machinery or refrigerators.

Utility

The power of a commodity or service to satisfy a human want.

Form Utility

The utility created by changing the form of a good, such as processing paddy into rice.

Place Utility

Utility obtained by the spatial movement of goods from surplus areas to deficit areas through transportation.

Possession Utility

Utility obtained through the transfer of ownership or possession of a commodity by buying and selling.

Cardinal Utility

The premise that utility can be measured quantitatively and aggregated across individuals.

Ordinal Utility

The measurement of utility where preferences are ordered rather than quantified.

Value

In economics, value-in-exchange, representing a commodity's capacity to command other things in exchange; it must possess utility, scarcity, and transferability.

Price

Value expressed in monetary terms.

Wealth

Anything which has value and consists of potentially exchangeable means of satisfying human wants; it must be external to the person.

Law of Diminishing Marginal Utility ($LDMU$)

First formulated by H.H. Gossen in $1854$, it states that the additional benefit a person derives from an increase in the stock of a thing diminishes with every increase in that stock.

Marginal Utility

The addition to total utility by the consumption of the last unit considered just worthwhile.

Law of Equi-marginal Utility

Also known as the Law of Substitution, it states a consumer is in equilibrium when the marginal utility derived from the last rupee spent on each good is the same.

Consumer’s Surplus

Introduced by Marshall in $1895$, it is the excess of the price a consumer is willing to pay over what they actually pay.

Demand

A desire to possess a good supported by willingness and ability to pay for it, always specified per unit of time and at a price.

Derived Demand

Demand for goods needed for further production, such as industrial raw materials or machine tools.

Cross Demand

Changes in the quantity purchased of a good due to changes in the price of a related commodity ($substitutes$ or $complements$).

Giffen Goods

Inferior goods whose quantity demanded decreases with a decrease in the price of the good.

Price Elasticity of Demand

The ratio of the percentage change in quantity demanded to the percentage change in price: $Ep = \frac{\Delta q}{q} \div \frac{\Delta p}{p}$.

Perfectly Inelastic Demand

A situation where quantity demanded does not change at all regardless of changes in price ($Es = 0$).

Unitary Elastic Demand

When the quantity demanded changes by exactly the same percentage as the price change ($Es = 1$).

Supply

The amount of a commodity that sellers are able and willing to offer for sale at different prices per unit of time.

Stock

The total quantity of a commodity that exists in a market and can be offered for sale at short notice.

Law of Supply

States that the quantity of a good offered for sale increases as market price increases and falls as price decreases, ceteris paribus.

Reserve Price

In the case of non-perishable goods, the price below which a seller refuses to sell any amount and holds back the entire stock.

Perfect Market

A market where all buyers and sellers are aware of prices and any buyer can purchase from any seller, leading to a uniform price.

Monopsony

A market structure in which there is only one buyer.

Oligopoly

A market structure dominated by a small number of participants who collectively exert control over supply and prices; often features a kinked demand curve.

Bilateral Monopoly

A market structure in which a single seller faces a single buyer.

Gross Domestic Product ($GDP$)

The total market value of all final goods and services currently produced within the domestic territory of a country in a year.

Gross National Product ($GNP$)

Includes $GDP$ plus net factor income from abroad.

Personal Income

The sum of all incomes actually received by all individuals or households during a given year, including transfer payments.

Disposable Income

Personal income minus personal taxes; the amount available for private individuals to spend or save.

Tax

A compulsory contribution from a person to the state to defray expenses incurred in the common interest without reference to special benefit.

Progressive Tax

A tax system in which the rate of tax increases with the increase in income.

Regressive Tax

A tax system where the burden falls more heavily on low-income earners than on rich earners.

Canons of Taxation

Notable contributions by Adam Smith consisting of four principles: Equality, Certainty, Convenience, and Economy.

Inflation

A persistent and appreciable rise in the general price level, often described as "too much money chasing too few commodities."

Deflation

A general decline in prices often caused by a reduction in the supply of money or credit; the opposite of inflation.

Stagflation

A condition of slow economic growth and high unemployment accompanied by a rise in prices.

Creeping Inflation

Price rises that are very slow, typically less than $3\%$ per annum.

Galloping Inflation

Also called hyperinflation, where prices rise between $20\%$ to $100\%$ per annum or more, leading to a collapse of the monetary system.

Consumer Price Index ($CPI$)

Also known as the cost-of-living index, it measures the weighted average changes in the price of a fixed basket of products and services.

$GDP$ Deflator

An index of the prices of all final goods and services constituting the $GDP$ or $GNP$, calculated as $\frac{\text{Nominal GDP}}{\text{Real GDP}} \times 100$.

Demand-pull Inflation

Inflation that occurs when aggregate demand exceeds aggregate supply at full-employment output.

Cost-push Inflation

Inflation caused by an autonomous rise in money wages or other input prices, often leading to a wage-price spiral.