- - AGRICULTURAL CORE CURRICULUM - - (CLF1000) Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT (CLF1200) Unit Title: ECONOMIC PRINCIPLES ____________________________________________________________________________ (CLF1201) Topic: INTRODUCTION TO Time Year(s) ECONOMIC PRINCIPLES 2 Hours 3 / 4 ____________________________________________________________________________ Topic Objectives: Upon completion of this lesson the student will be able to: Learning Outcome #: (E-1) - Describe the basic economic factors that affect farm and aribusiness management decisions. (E-6) - Explain the importance of agribusiness and its impact on the gross national product and the total economy. Supplemental Materials: (attached) SUPPLEMENTAL TABLE/CHART 1 INDUSTRY DISTRIBUTION OF NATIONAL OUTPUT... SUPPLEMENTAL TABLE/CHART 2 YOLO COUNTY MILLION DOLLAR CROPS-1989 (Contact your local county agricultural commissioner for a copy of your county's top agricultural commodities.) References: Cramer, Gail L., & Jensen, Clarence W. (1991). AGRICULTURAL ECONOMICS AND AGRIBUSINESS (4th ed.). New York: John Wiley & Sons. Resources: Baker, Richard L. (Ed.). (1970). PROFIT-MAXIMIMIZING PRINCIPLES. Available from: Instructional Materials Laboratory, University of Missouri, 22316 Industrial Drive, Columbia, MO 65202 Evaluation: Unit Exam TOPIC PRESENTATION: INTRODUCTION TO ECONOMIC PRINCIPLES A. Agriculture/agribusiness makes a large economic contribution to both federal and state economies. 1. Farming itself (primary production of agricultural commodities) is one of the smaller industries nationally, producing 2% of the national output and directly employing only 3% of the employed labor force. (Refer to SUPPLEMENTAL TABLE/CHART 1, Industry Distribution of National Output and Employed Labor Force, United States, 1985.) 2. Agriculture/agribusiness indirectly accounts for much employment in other industries such as manufacturing and processing, wholesaling, and retail trade. ________________________________________________________________ ACTIVITY: 1. Identify jobs in each of the categories on SUPPLEMENTAL TABLE/CHART 1 that are dependent on agriculture/agricultural business. ________________________________________________________________ 3. Nationally, agriculture employs 3.2 million people in farm production, 16.3 million in marketing farm products, and 2.0 million in the production of farm equipment and supplies. Agriculture as a whole employs approximately 21% of the labor force in the United States. 4. The farm and food system contributes 18% of the gross national product. 5. Agriculture/agricultural business is California's largest industry. 6. In 1989, for the forty-second consecutive year, California was the nation's leading farm state, with commodities valued at $17.5 billion. California had 85,000 farms in 1990, up 1000 from 1989. Almost 31 million acres were used for agricultural production in 1990. 7. This $17.5 billion grows to at least $52.5 billion as it moves through the state's economy. (Typically a multiplier of 3 is used when calculating the contribution of agriculture to the total economy.) ________________________________________________________________ ACTIVITY: 1. Display the local county's Million Dollar Crops (Commodities), SUPPLEMENTAL TABLE/CHART 2. Discuss the jobs that students' parents hold and determine which ones are related to agriculture. Discuss major local industries that are dependent on agriculture. 2. Use the major agricultural commodities produced by the state of California rather than the local county's commodities. Discuss the items in the activity above, except on a statewide basis. If time permits, do both. ________________________________________________________________ B. Economics 1. Economics is the allocation of scarce resources between competing ends to maximize desired outcomes. a. Scarcity - The condition of scarcity results from the fact that resources are limited but desires are unlimited. b. Allocation - Because resources are scarce, choices must be made about how to use them. In order to gain one good or service, some amount of another good or service must be given up. c. Competing ends - The true cost of any good or service is the value of the alternatives foregone. This is called opportunity cost. Example: A student has $5000 in the bank and is trying to decide whether or not to buy a used car. If the $5000 is in a savings account earning 5% interest, the opportunity cost of buying the car is the $300 per year that is given up by taking the money out of the bank. Is the car worth the $300 per year given up? _________________________________________________________ ACTIVITY: 1. It is often argued that extreme medical procedures such as organ transplants should always be used, no matter how costly, if there is a chance of saving a life because "you can't place a monetary value on human life." Discuss this statement in terms of the concept of opportunity costs. Consider the alternative use of scarce research dollars and the alternative use of resources for preventive medical procedures. _________________________________________________________ d. Outcomes - It is generally assumed that consumers wish to maximize their utility (an economic term for satisfaction) and producers wish to maximize their profit. 2. The field of economics spans two major areas of economic activity: a. Microeconomics - The subject studied is a single decision-making entity, usually a single consumer or producer. b. Macroeconomics - The subject studied is the economic system as a whole: changes in the money supply, the flow of goods and services, employment, national income. 3. Agricultural economics is economics applied to agriculture and sometimes to rural areas. It is the study of how individuals choose to use scarce productive resources (land, labor, capital, and management) to produce food and fiber and to distribute it for consumption. a. Economic principles can guide such basic farm production decisions as what combination of products to produce, how much of a product to produce, what combination of inputs to use, and how much of an input to use. C. Both physical and economic factors affect farm management decisions. 1. Physical relationships between inputs and outputs in production underlie all economic relationships. For example, a physical relationship between fertilizer and corn could be expressed as 40 lbs. per acre of fertilizer yields per 80 bushels per acre of corn. 2. Economic relationships refer to associations between inputs and/or outputs in monetary terms. For example, it may take 3 cents worth of concentrates to produce 15 cents worth of milk. 3. The link between physical production relationships and economic relationships is price. The price of inputs and the price of outputs must be considered when making economic decisions. a. Profits = Total Revenue minus Total Costs. b. Profit is an economic relationship between the costs of production and the revenues from selling output. c. Profits are influenced by the prices of inputs and the prices received for outputs. 4. Prices are determined by market forces external to the individual producer. SUPPLEMENTAL TABLE/CHART 1 INDUSTRY DISTRIBUTION OF NATIONAL OUTPUT AND EMPLOYED LABOR FORCE, UNITED STATES, 1985 _____________________________________________________________________________ NATIONAL EMPLOYED OUTPUT LABOR FORCE TYPE OF INDUSTRY (%) (%) _____________________________________________________________________________ Farming 2 3 Mining and Construction 8 6 Manufacturing 20 19 Transportation, Communication 10 5 and Utilities Wholesale and Retail Trade 16 23 Finance, Insurance, Real Estate 16 6 Services 16 22 Government (state, local, federal) 12 16 _____________________________________________________________________________ Source: "Economic Report of the President," United States Government Printing Office, Washington, DC, 1986; and "Survey of Current Business," U.S. Department of Commerce, March 1986. SUPPLEMENTAL TABLE/CHART 2 YOLO COUNTY MILLION DOLLAR CROPS-1989 1. Tomatoes $78,671,000 2. Wheat 25,840,000 3. Alfalfa Hay 16,109,000 4. Rice 12,930,000 5. Seed 11,472,000 6. Almonds 9,702,000 7. Sugar Beets 8,683,000 8. Walnuts, English 8,592,000 9. Corn 8,446,000 10. Safflower 7,273,000 11. Melons 6,900,000 12. Cattle and Calves 5,661,000 13. Nursery 4,635,000 14. Prunes 3,565,000 15. Grapes for Wine 2,573,000 16. Pears 1,860,000 17. Market Milk 1,717,000 18. Apricots 1,470,000 19. Pasture, Irrigated 1,300,000 20. Sheep and Lambs 1,222,000 Source: Yolo County Agricultural Commissioner's "1989 Agricultural Crop Report" Note: Each county in the state is required to publish an agricultural crop report each year. 12/2/91 LM/GB/sg #%&C