AGSY102 Economics: Topic 1

Utility and Value Systems

  • Individuals place different values (Utility) on goods, services and assets based on personal preferences and circumstances.
  • Societies need a system for valuing things.
  • Value Systems include:
    • Traditional Value Systems (prices set by Monarchs)
    • Labour Value Systems (prices set by government based on labour)
    • Scarcity or Market Value Systems

The Economic Problem

  • Economics is about production and consumption to satisfy human needs with available resources.
  • Scarcity is the central problem: unlimited needs vs. limited resources.
  • Demand and supply help reconcile resources and needs to allocate what is available.

Why Should We Study Economics

  • Explains how governments, businesses and individuals allocate scarce resources.
  • Provides models to predict responses to policy and market changes.
  • Aids decision-making in business and daily life.
  • Assumes rational behavior (rationality).
  • Cost-Benefit Rule guiding choices.
  • Objective choices: maximize production or maximize profits; consider alternative technologies and products/markets.

Sustainable Agro-food Value Chains

  • Definition (FAO, 2014): the full range of farms and firms in successive coordinated value-adding activities that produce raw agricultural materials and transform them into food products, sold to final consumers and disposed of after use, in a manner that is profitable, benefits society, and does not permanently deplete natural resources.

Triple Bottom Line

  • Value chains should consider: Profit, People, Planet (economically, socially, environmentally sustainable).
  • Could add a fourth dimension: Political sustainability.

Sustainability Focus Areas

  • Sustainability-related lenses include: Animal Management, Environmental Management, Market Trends, Economic Tools and Sustainability, Social, Agronomic Management, Political, Agricultural Technology.

Microeconomics

  • Studies individual units: households, firms, industries.
  • Core questions: What to produce? How to produce? For whom to produce?
  • Opportunity Cost: the cost of any activity measured in terms of the best alternative forgone.
    • OC = ext{value of the best foregone alternative}
  • Make rational decisions: Benefits vs. Opportunity Costs.
  • Marginal Benefits vs. Marginal Costs (of an extra unit).
  • Consider social implications of choice.

Macroeconomics

  • Studies economic aggregates (grand totals): level of prices, output, employment.
  • Key issues: managing demand and supply aggregates; promoting national growth; controlling inflation; balancing trade; stabilizing unemployment.

Modelling Economic Relationships

  • Economists use diagrams and equations to illustrate economic issues; these are called models.
  • The Production Possibility Curve (PPC) is a core model.
  • PPC shows all feasible combinations of two goods that can be produced in a period with resources fully and efficiently employed.

Production Possibility Curve (PPC)

  • Efficient production lies on the curve.
  • Impossibility lies outside the curve.
  • Inside the curve indicates inefficiency (unused resources).

Making a Fuller Use of Resources

  • Moving from inefficient interior points to efficient points on the PPC increases overall production.

Increasing Opportunity Costs

  • As production moves along the PPC, opportunity costs rise (trade-offs become larger).
  • Example figures illustrate that allocating more of one good reduces the other by increasingly larger amounts.

Growth in Actual Output

  • Actual output growth shows real-world increases in production levels for goods (e.g., Food and Clothing).

Growth in Potential Output

  • Potential output growth represents the economy’s capacity to produce in the future.
  • Graphs show shifts outward as technology and resources improve.

References

  • Albu, M., & Griffith, A. (2005). Mapping the Market: A Framework for Rural Enterprise Development Policy and Practice.
  • FAO (2014). Developing Sustainable Food Value Chains – Guiding Principles.
  • Hubbard, R. G., et al. (2021). Essentials of Economics (5th ed.).
  • Sloman, J., & Garratt, D. (2023). Essentials of Economics (9th ed.).