AGRICULTURAL ECONOMICS
MASTER EXAM STUDY SUMMARY
Exam Preparation | Key Concepts | Copy-Pastable Formulas
1. THE ECONOMIC PROBLEM
Definition of Economics
Economics is the study of how individuals, firms and societies allocate scarce resources among
competing uses to satisfy unlimited wants.
Core problem:
Unlimited Wants > Limited Resources
This situation is called scarcity.
Because of scarcity:
• choices must be made
• trade-offs occur
• opportunity costs arise.
2. SCARCITY
Scarcity means resources are limited relative to unlimited human wants.
Example:
A farmer must choose between:
• maize production
• cattle production.
Choosing one means sacrificing the other.
3. OPPORTUNITY COST
Opportunity cost is:
The value of the next best alternative forgone when a decision is made.
Example:
If land is used for maize instead of cattle:
Opportunity Cost = Profit from cattle production forgone
Opportunity cost is the foundation of economic decision making.
4. FACTORS OF PRODUCTION
Production uses three main resources.
Natural Resources
Examples:
• land
• water
• soil
• livestock
• climate.
, Human Resources
Examples:
• labour
• knowledge
• skills
• management.
Capital (Manufactured Resources)
Examples:
• tractors
• irrigation systems
• machinery
• buildings.
5. MICROECONOMICS VS MACROECONOMICS
Microeconomics
Studies individual decision makers:
• consumers
• firms
• industries.
Topics include:
• demand
• supply
• production
• pricing.
Macroeconomics
Studies the entire economy:
• GDP
• inflation
• unemployment
• economic growth.
6. DEMAND
Demand is the willingness and ability of consumers to buy a good at different prices during a given
period.
LAW OF DEMAND
When price increases → quantity demanded decreases
When price decreases → quantity demanded increases
Demand curve therefore slopes downward.
Reasons:
• substitution effect
• income effect
• diminishing marginal utility.
MASTER EXAM STUDY SUMMARY
Exam Preparation | Key Concepts | Copy-Pastable Formulas
1. THE ECONOMIC PROBLEM
Definition of Economics
Economics is the study of how individuals, firms and societies allocate scarce resources among
competing uses to satisfy unlimited wants.
Core problem:
Unlimited Wants > Limited Resources
This situation is called scarcity.
Because of scarcity:
• choices must be made
• trade-offs occur
• opportunity costs arise.
2. SCARCITY
Scarcity means resources are limited relative to unlimited human wants.
Example:
A farmer must choose between:
• maize production
• cattle production.
Choosing one means sacrificing the other.
3. OPPORTUNITY COST
Opportunity cost is:
The value of the next best alternative forgone when a decision is made.
Example:
If land is used for maize instead of cattle:
Opportunity Cost = Profit from cattle production forgone
Opportunity cost is the foundation of economic decision making.
4. FACTORS OF PRODUCTION
Production uses three main resources.
Natural Resources
Examples:
• land
• water
• soil
• livestock
• climate.
, Human Resources
Examples:
• labour
• knowledge
• skills
• management.
Capital (Manufactured Resources)
Examples:
• tractors
• irrigation systems
• machinery
• buildings.
5. MICROECONOMICS VS MACROECONOMICS
Microeconomics
Studies individual decision makers:
• consumers
• firms
• industries.
Topics include:
• demand
• supply
• production
• pricing.
Macroeconomics
Studies the entire economy:
• GDP
• inflation
• unemployment
• economic growth.
6. DEMAND
Demand is the willingness and ability of consumers to buy a good at different prices during a given
period.
LAW OF DEMAND
When price increases → quantity demanded decreases
When price decreases → quantity demanded increases
Demand curve therefore slopes downward.
Reasons:
• substitution effect
• income effect
• diminishing marginal utility.
