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.).