AG Chapter 1, 2, 3, and 4 Flashcards
`1Define economics
A social science concerned chiefly with description and analysis of the production, and consumption of goods and services.
Define agricultural economics
an applied social science that deals with how producers, consumers, and societies use scarce resources in the production, processing, marketing, and consumption of food and fiber products
Define scarcity
when supply of a source cannot meet demand
Characteristics of microeconomics
- factors that influence individual economic choices
- labor economics
- decisions of individual firms
- decisions of individual consumers
- decisions of individual households
- how demand and prices are determined in individual markets
Characteristics of macroeconomics
- The big picture
- inflation
- unemployment
- national output
- national income
- includes national, regional, and global economics
Define specialization
when an individual or a company specializes in doing one part of a task and relies on others to complete the other parts.
What is an example of specialization?
Kansas:
* surplus of wheat
* Shortage of oranges
* shortage of potatoes
Idaho:
* Surplus of potatoes
* Shortage of wheat
* Shortage of oranges
Florida:
* Surplus of oranges
* Shortage of wheat
* Shortage of potatoes
Explanation
- Kansas gives wheat to Idaho in exchange for potatoes.
- Idaho gives potatoes to Florida in exchange for oranges.
- Florida gives oranges to Kansas in exchange for wheat.
What is comparative advantage?
the ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals.
A _____________ gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.
What is opportunity cost?
the potential benefits that an individual, investor or business misses out on when choosing one alternative over another.
Define utility
the total satisfaction or benefit from consuming a good or service.
What is the formula for net profit?
total revenues - total expenses
What is the formula for revenue?
Quantity x prince
What is capitalism?
an economic system characterized by private ownership in which the free market alone controls the production of goods and services.
What are 3 basic characteristics of a socialist economy?
- state owns major factors of production
- central planners determine many of the basic processes
- there is an attempt to distribute income equally
What is communism?
all property is publicly owned and each person works and is paid according to their abilities and needs.
What is a mixed economy?
an economic system that has elements of traditional, command, and market economies.
What is socialism?
the economic system in which the people control production and distribution through the government and then the people share the profits.
Who is the founding father of economics? What was the name of his famous book?
Adam Smith and “Wealth of Nation”
Discretionary Income Formula
Gross income - taxes - essential expenses
Disposable Income Formula
gross annual income - financial obligations
Define disposable income
money left over from salary after all taxes paid
Define discretionary income
whats leftover after paying necessities out of your disposable income like rent, mortgage, health care and transportation
What does the Engel curve reveal
Engel’s Law is an economic theory that describes the
relationship between household income and a particular
good or service expenditures. It states that as family
income increases, the percentage of income spent
on food decreases.
What is productivity?
the relationship between the amount of outputs and amount of inputs needed to produce a product
Formula for productivity
output / input
define risk
the effect of uncertainty on objectives
why does the government give money to farmers?
Farm subsidies are government
financial benefits paid to the agriculture
industry that help reduce the risk
farmers endure from the weather,
commodities brokers, and
disruptions in demand.
What is the law of demand?
- when the price goes up, the quantity demanded goes down
- when the price does down, the quantity demanded goes up
Define demand
an economic principle referring to a customer’s desire to purchase goods and services and willingness to pay a price for a specific good or service
Law of supply and demand
- if the price increases, then supply goes up and demand goes down
- if the price decreases, then supply goes down and demand goes up
define benchmarking
a process where you measure your company’s success against competitors to discover how to improve your performance
define deflation
the general prices of goods and services of an economy fall for a significant period of time
What are the 4 factors of production?
land, labor, capital, and entrepreneurship
define factors of production
the factors of production are the inputs used to produce a good or service in order to produce income
Define utility function
a mathematical or functional representation of the satisfaction a consumer derives from a consumption bundle
Consumer price index formula
value of market basket in the given year/value of market basket in the base year x 100
what do the letters in the national income formula stand for: Y=C+I+G+(X-M)
Y = national income (GDP)
C = consumer spending
I = investment
G = government spending
X = exports
M = imports
Define GDP
the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period
Define cardinal utility
the satisfaction derived by the consumers from consumption of good or service can be measured numerically
Define ordinal utility
the satisfaction which a consumer derives from the consumption of product or service cannot be measured numerically
formula for utility function
U/S = f(c)
what do the letters in the formula U/S = f(c) stand for
U= Utility
S= Satisfaction
f= Function
c= Commodity
what does rational in economics mean?
Individuals always make decisions that provide them with
the highest amount of personal utility.
Define marginal utility
is the change in utility/satisfaction due to the change
in consumption of a particular good
(increase/decrease)
How to calculate marginal utility
to calculate the MU, subtract the TU values from each other. Look at the chart in chapter 3 for an understanding of the given example. For example, 30 - 20 (TU values) equals 10 which is the MU value.
Law of diminishing marginal utility
Productive phase -> point of diminishing return -> diminishing returns -> point of maximum output -> negative returns
Marginal rate of substitution
an economic model that illustrates how consumers make tradeoffs among competing products
What is the MRS of substitution of good x and for good y
change in good Y/change in good X
define indifference curve
showing various combinations of two goods or commodities that leave the consumer equally well off or equally satisfied
What does Gross National Product (GNP) measure?
measures the goods and services produced by only the U.S. residents, both domestically and abroad
GDP Nominal values
refer to values for which no adjustments to inflation have been made
GDP Real values
refer to values for which adjustments to inflation have been made
Define Ceteris Paribus
Ceteris paribus or caeteris paribus is a Latin
phrase meaning “other things equal”; English
translations of the phrase include “all other
things being equal” or “other things held
constant” or “all else unchanged”.
Consumer surplus formula
Maximum price willing to pay - actual price
Define consumer surplus
The difference between willingness to pay and the amount actually paid. CS operationally is the area below the demand curve & above the market price.
Define independent goods
goods that have nothing to do with each other will have no elasticity
*example would be fried chicken and books about the second world war
Define complementary good
a product or service that adds value to another. In other words, they are two goods that the consumer uses together. For example, cereal and milk.
What are inferior goods?
are a type of good whose demand decreases with
an increase in the consumer’s income and vice-versa
What are normal goods?
the types of goods for which demand increases when income of the consumers raises and vice versa
What are the types of goods?
- Normal
- Inferior
- Luxury
- Giffen
What are the factors affecting demand?
- Price of the commodity
- Income of the consumer
- Consumer Taste and preference
- Prices of related good
- Consumer’s expectation
- Consumer credit facility
- Size and composition
- Distribution of income
- Government Policy
What are the 5 determinants of demand?
- Price of good or service
- Income of buyers
- Prices of related goods or services
- Tastes of consumers
- Expectation
what is the formula for the five determinants of demand?
qD = F
*f = price, income, prices of related goods, tastes, expectations
A movement along a demand curve is referred to as what?
a change in the quantity demanded
A shift in the demand curve is referred to as what?
a change in demand
Define substitution effect
occurs when consumers react to an increase in a good’s price by consuming less that good and more of other goods
Define income effect
happens when a person changes his or her consumption of goods and services as a result of a change in real income
Define consumer equilibrium
When a consumer gets maximum satisfaction out of a commodity.
