understanding basic economic principles. common core/next generation standards addressed! rst.6 ‐...
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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
CapitalCompetitive enterprisesComplementary enterprisesEquilibriumLaw of diminishing returns
Terms Continued
LaborLandLaw of DemandLaw of SupplyManagement
Terms Continued
Marginal costMarginal returnPrinciple of Equimarginal
ReturnsResourceSupplementary enterprises
Resource is an item used to produce a product or service.
Land Capital Labor Management
Land includes everything in nature used in production.
SoilMineralsWildlife
Capital includes things used in production that are man-made.
CashEquipmentBuildingsSupplies
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!