Download PowerPoint


Understanding Basic Economic
Principles
Common Core/Next Generation Standards Addressed!
RST.6‐8.2 - Determine the central ideas or conclusions of a text; provide an
accurate summary of the text distinct from prior knowledge or opinions.
(MS‐LS1‐6)
RI.8.8 - Trace and evaluate the argument and specific claims in a text,
assessing whether the reasoning is sound and the evidence is relevant and
sufficient to support the claims. (MS‐LS2‐4)
WHST.6‐8.2 - Write informative/explanatory texts to examine a topic and
convey ideas, concepts, and information through the selection, organization,
and analysis of relevant content. (MS‐LS1‐6)
Career Cluster Standards – Agriculture, Food and Natural
Resources.

Pathway Content Standard: The student will demonstrate
competence in the application of principles and techniques for the
development and management of agribusiness systems.


ABS.01. Performance Element: Utilize economic principles to
establish and manage an AFNR enterprise.
ABS.01.01. Performance Indicator: Apply principles of capitalism in
the business environment.
ABS.01.01.01.a. Recognize principles of capitalism as
related to AFNR businesses.
Bell Work
 How
much money do you spend
in a week?
 How do you decide what
purchases to make?
 How can you save more?
STUDENT LEARNING
OBJECTIVES







Understand the resources needed for
agricultural businesses.
Understand the Law of Supply.
Understand the Law of Demand.
Understand the relationship between supply and
demand.
Understand the Law of Diminishing Returns
Understand the Principle Equimarginal Returns.
Understand the relationship between
enterprises.
Terms
 Capital
 Competitive
enterprises
 Complementary enterprises
 Equilibrium
 Law of diminishing returns
Terms Continued
 Labor
 Land
 Law
of Demand
 Law of Supply
 Management
Terms Continued
 Marginal
cost
 Marginal return
 Principle of Equimarginal Returns
 Resource
 Supplementary enterprises
Resource is an item used to produce
a product or service.
 Land
 Capital
 Labor
 Management
Land includes everything in nature
used in production.
 Soil
 Minerals
 Wildlife
Capital includes things used in
production that are man-made.
 Cash
 Equipment
 Buildings
 Supplies
Labor is the physical energy
supplied by humans.
Management is the decision making
function of the business.
Law of Supply

The Law of Supply states that when
the price of a product is lowered, with
no change in other factors, less of the
product will be supplied.
Factors Affecting the Supply

Technology affects supply.
 Generally, technology decreases the
cost of production, making it cheaper to
produce the product.
 The rate that technology advances is
not constant.
Factors Affecting the Supply

Costs of production affects supply.
 When prices of inputs change, the level
of production often changes.
 Generally, producers try to sell products
for at least as much as the total cost of
all the inputs.
Factors Affecting the Supply

Price of other products affects supply.
 If a firm can produce a different product
that is priced higher, it may change
production to capitalize on higher
profits.
 Sometimes it is unfeasible to shift fixed
assets to produce different products, i.e.
removing an orchard to take advantage
of higher corn prices.
Factors Affecting the Supply

Seasonal and cyclical production affects
supply.
 Some cycles of production are
uncontrollable, i.e. time required for
livestock to reproduce, time needed for
plants to bear fruit.
 Certain fruits and vegetables are
considerably cheaper when “in-season”.
Law of Demand

The Law of Demand states that
when the price of a product is
increased with no change in other
factors, less product will be
purchased.
Factors Affecting Demand

Size of population affects demand.
 With higher population more
product will be needed.
 All other things constant, demand is
increased as population increases.
Factors Affecting Demand

Tastes and preferences of consumers
affects demand.
 Tastes and preferences change
with time and other factors.
 Weather affects preferences, (i.e.
coats in the winter, barbecue foods
in the summer).
Factors Affecting Demand

Income and distribution of wealth
affects demand.
 Generally, higher income results in
more products being purchased.
 More luxury items are purchased as
incomes increase.
Factors Affecting Demand

Relative prices of all goods and services affect
demand.
 With a limited budget, decisions to buy an
item directly affects the amount of another
item that can be purchased.
 When the price of a substitute item
decreases, consumers will purchase more of
the substitute.
 When the price of a complement (items used
together) decreases, more of the item will be
purchased.
Relationship between Supply and
Demand

Interaction of supply and demand
determines price.




Price is found at equilibrium, where the
supply and demand curves intersect.
If demand curve shifts right, the price
increases.
If supply curve shifts left, the price increases.
Foreign trade is a major player in price
determination of agricultural commodities.
Principle of Diminishing Returns


Law of Diminishing Returns affects physical
output and economic returns.
The law of diminishing returns states that as a
variable resource is added to fixed resources,
marginal output declines immediately or after an
initial stage of increasing marginal returns. Total
output may increase at an increasing rate for a
time, but then increases at a decreasing rate
until it reaches its maximum.
Principle of Diminishing Returns

Values need to be provided to understand
the law of diminishing economic returns.



The additional cost of each unit of input is
called marginal cost.
The additional return resulting from each unit
of input is called marginal returns.
Net returns will be highest when marginal cost
is equal to marginal return.
Principle of Equimarginal Returns

The Principle of Equimarginal Returns states
that to allocate a resource among several
alternative uses in such a way that the marginal
returns are equal in all uses.
 Never invest capital in an alternative that
does not provide returns equal to or greater
than the amount invested.
 Always invest capital in the option that
provides the greatest marginal returns, so
long as the returns are greater than the
amount invested.
Relationship between Enterprises


Many businesses combine several
enterprises to maximize profits.
Supplementary enterprises are those
where one enterprise supplements the
income of another.


A sports stadium is often used for concerts.
A lawn tractor can be used to move snow.
Relationship between Enterprises

Complementary enterprises are those
where one enterprise produces the inputs
for another.


Soybeans used in rotation to leave nitrogen for
corn.
Tree trimming service may sell mulch.
Relationship between Enterprises

Competitive enterprises are those where
one enterprise interferes with another.


Enterprises competing for labor resources.
Students who work so much that they do not
have enough time to study.
Review/Summary






What resources are needed for a
agricultural businesses?
Define the Law of Supply and Demand.
What is the relationship between supply
and demand?
Explain the Law of Diminishing Returns.
Explain the principle Equimarginal
Returns.
Identify the relationship between
enterprises.
The End!