Solutions Manual with Test Bank for Agricultural Economics 3rd Edition By Evan Drummond, John Goodwin (All Chapters, 100% Original Verified, A+ Grade) 2

I & II year Semester b b b b b


Tamil Nadu Anna Mala University b b b b


Agriculture Economics b




FUNDAMENTALS OF ECONOMICS b b b
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1 NATURE AND SCOPE OF ECONOMICS
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Basically man is involved in at least four identifiable relationships: a) man wit
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h himself, the general topic of psychology b) man with the universe, the study of th
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e biological and physical sciences; c) man with unknown, covered in part by theol
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ogy and philosophy d) man in relation to other men, the general realm of the social
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sciences, of which economics is a part. It is hazardous to delineate these areas of i
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nquiry explicitly. However, the social sciences are generally defined to include ec
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onomics, sociology, political science, anthropology and portions of history and ps
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ychology, Economists use history, sociology and other fields such as statistics and
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mathematics as valuable adjuncts to their study.
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As a body of knowledge, economics is a relatively new subject, having been ar
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ound formally a scant two centuries, but subsistence, wealth and the ordinary busi
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ness of life are, as we all know, as old as mankind. Economics deals with many soc
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ioeconomic issues, most of which are of immediate concern to us. Although it is te
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mpting to continue to discuss important economic problems, such a discussion wo
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uld be premature. To form a reasoned opinion, it is necessary to analyses the issue
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s carefully, a process which requires a meaningful, sequential exposure to econom
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ics. bb




Nature has blessed the humans with abundant natural wealth to live on this eart
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h. Humans would have been contended with what nature provided, had they been
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able to peg their wants (requirements) at a given level. But it is not so, man being b
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orn in this world is influenced by biological, physical and social needs, which kee
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p him always busy in searching out the means to keep him satisfied. To fulfill his r
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equirements arising out of various needs, he involves in an activity called economi
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c activity. Conversely, man would have freed himself from economic activity, had
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there been no resource scarcity and also what humans want can be satisfied witho
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ut limit. But neither of the possibilities being found because of the scarcity of reso
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b 1b

,urces imposed by the nature, humans always deeply engage in arriving at an equati
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on, which balances their unlimited wants and limited means. By engaging themsel
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ves in the economic activity people aim at maximizing their satisfaction from their
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bscarce resources. Thus, scarcity is the pivot for the economic activity of the peopl
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e representing consuming and producing segments leading to the origination of a f
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ield of study called economics. The field of economics keeps on going as long as t
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he human race exists on the earth with their toiling to satisfy their ever-
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new and ever- b b



emerging wants and satisfying the same through their efforts. Thus, the field of ec
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onomics constitutes wants, efforts and satisfaction.
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Two major factors are responsible for the emergence of economic problems. T
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hey are: i) the existence of unlimited human wants and ii) the scarcity of available
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resources. The numerous human wants are to be satisfied through the scarce resou
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rces available in nature. Economics deals with how the numerous human wants ar
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e to be satisfied with limited resources. Thus, the science of economics centers on
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want - effort - satisfaction.
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WANT b b


b



SATISFACTION b
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Economics not only covers the decision making behavior of individuals but als b b b b b b b b b b b



o the macro variables of economies like national income, public finance, internati
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onal trade and so on. b b b b b

b


A. DEFINITIONS OF ECONOMICS
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Several economists have defined economics taking different aspects into acco
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unt. The word ‘Economics’ was derived from two Greek words, oikos (a house) a
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nd nemein (to manage) which would mean ‘managing an household’ using the lim
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ited funds available, in the most satisfactory manner possible.
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i) Wealth Definition b bb




Adam smith (1723 - b b b



b1790), in his book “An Inquiry into Nature and Causes of Wealth of Nations” (17
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76) defined economics as the science of wealth. He explained how a nation’s weal
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th is created. He considered that the individual in the society wants to promote onl
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b 2b

,y his own gain and in this, he is led by an “invisible hand” to promote the interests
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of the society though he has no real intention to promote the society’s interests.
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Criticism: Smith defined economics only in terms of wealth and not in terms of hu
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man welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’, as i
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t taught selfishness which was against ethics. However, now, wealth is considered
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only to be a mean to end, the end being the human welfare. Hence, wealth definitio
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n was rejected and the emphasis was shifted from ‘wealth’ to ‘welfare’.
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b

ii) WelfarebDefinitionbb

Alfred Marshall (1842 - b b b



b1924) wrote a book “Principles of Economics” (1890) in which he defined “Politi
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cal Economy” or Economics is a study of mankind in the ordinary business of life;
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it examines that part of individual and social action which is most closely connect
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ed with the attainment and with the use of the material requisites of wellbeing”. Th
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e important features of Marshall’s definition are as follows:
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a) AccordingbtobMarshall,beconomicsbisbabstudybofbmankindbinbthebordinarybbusine
ss of life, i.e., economic aspect of human life.
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b) Economicsbstudiesbbothbindividualbandbsocialbactionsbaimedbatbpromotingbecon
omic welfare of people. b b b b




c) Marshallbmakesbabdistinctionbbetweenbtwobtypesbofbthings,bviz.bmaterialbthingsba
nd immaterial things. Material things are those that can be seen, felt and touche
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d, (E.g.) book, rice etc. Immaterial things are those that cannot be seen, felt and
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touched. (E.g.) skill in the operation of a thrasher, a tractor etc., cultivation of h
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ybrid cotton variety and so on. In his definition, Marshall considered only the
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material things that are capable of promoting welfare of people.
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Criticism: a) Marshall considered only material things. But immaterial things, suc
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h as the services of a doctor, a teacher and so on, also promote welfare of the peopl
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e. b




b) Marshallbmakesbabdistinctionbbetweenb(i)bthosebthingsbthatbarebcapablebofbpr
omoting welfare of people and (ii) those things that are not capable of promoting
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b 3b

, welfare of people. But anything, (E.g.) liquor, that is not capable of promoting wel
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fare but commands a price, comes under the purview of economics.
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c) Marshall’sbdefinitionbisbbasedbonbthebconceptbofbwelfare.bButbtherebisbnobclea
r-
cut definition of welfare. The meaning of welfare varies from person to person, co
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untry to country and one period to another. However, generally, welfare means ha
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ppiness or comfortable living conditions of an individual or group of people. The
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welfare of an individual or nation is dependent not only on the stock of wealth pos
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sessed but also on political, social and cultural activities of the nation.
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b
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iii) WelfarebDefinitionbb

Lionel Robbins published a book “An Essay on the Nature and Significance of
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Economic Science” in 1932. According to him, “economics is a science which stu
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dies human behavior as a relationship between ends and scarce means which have
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alternative uses”. The major features of Robbins’ definition are as follows:
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a) Endsbreferbtobhumanbwants.bHumanbbeingsbhavebunlimitedbnumberbofb
Wants. b




b) Resourcesborbmeans,bonbthebotherbhand,bareblimitedborbscarcebinbsupply.bTherebisb
scarcity of a commodity, if its demand is greater than its supply. In other words,
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the scarcity of a commodity is to be considered only in relation to its demand.
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c) Thebscarcebmeansbarebcapablebofbhavingbalternativebuses.bHence,banyonebwillbch
oose the resource that will satisfy his particular want. Thus, economics, accordi
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ng to Robbins, is a science of choice.
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Criticism: a) Robbins does not make any distinction between goods conducive to
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human welfare and goods that are not conducive to human welfare. In the producti
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on of rice and alcoholic drink, scarce resources are used. But the production of rice
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promotes human welfare while production of alcoholic drinks is not conducive to
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human welfare. However, Robbins concludes that economics is neutral between e
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nds. bb




b) In economics, we not only study the micro economic aspects like how resou
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rces are allocated and how price is determined, but we also study the macroecono
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b 4b