1 1 17 14 Agricultural Economics Chapter 2 The Farm and Food System Family Farms A corporation form of organization can be used to transfer farms to others Employee benefits are deductible Separate management from ownership to reduce liability Classification Sales of 100 000 or more o Large farms dominant 82 o Receive 62 of government support o Income of off farm 37 000 Sales between 20 000 and 99 000 o 14 output o 26 of government support o Income off farm 63 396 Sales less than 20 000 o Non commercial class o Income off farm 49 678 Terms Vertical coordination o The linking of successive stages in the marketing and production of a commodity in one decision entity Taking ownership at different levels Cooperatives o A business that is organized capitalized and managed for its member patrons furnishing or marketing goods and services to the patrons at cost Small producers that form a business and then can get market power Member patrons receive dividends which are a return of the profits or net savings of the cooperative Often returned based on the magnitude of transaction made b w the cooperative and farmer 1 Supply cooperatives or 2 Marketing cooperative Trends Number of farms decreasing but average farm much larger Farm workers have declined due to agriculture productivity increases Louisiana very diverse in terms of what the farms produce Rice south central Cotton east along Mississippi River Sugarcane 1 commodity 2 ERS County Typologies Farming dependent o 15 or more of earnings from farming Mining dependent o 15 or more mining Manufacturing dependent o 15 or more Federal state government dependent o 15 or more Services dependent o 45 or more from services Nonspecialized Chapter 2 Book Notes 2 2 million farms 435 acres on average Most are cash grain and livestock operations Major imported coffee meat fruit veggies GDP measures the total value of final goods and services produced in the 2 economic actors in our system household and business firms 11 of disposable income on food economy during a given period of time Can be measure in either the product market or the factor market Agriculture is composed of the complete food and fiber system Farms produce 2 of the US gross national product Employ 3 of the labor force Total agribusiness system employs 16 of the US labor force Only 4 are corporations Average noncommercial farmer has an off farm income of 48 567 Households buy products and sell resources Business firms buy resources and sell products 100 000 or more are 17 and produce 82 of output 3 Agricultural Economics 1 22 14 Agribusiness Farm production by commodity type Livestock farmers are greatest in number account for 35 of farms with sales greater than 5 000 Cash grain second highest Other large producing commodity types include other field crops and dairy Forestry extremely important in LA Agribusiness is not only commodity production but includes value added commodity processing marketing transport and wholesale retail activities o Business aspect of it Agriculture commodities growing Much of the increased exports and imports due to increasing level of free and lower cost trade of agricultural commodities from free trade agreements Trade major impact on agriculture with 23 of all farm income derived from agricultural product exports Gross national product o Total value of all finished goods and services produced in the economy of a country in a given time period by all businesses headquartered in this country whether these goods were produced in the US or not Gross domestic product o Total value of goods and services produced in the US border Measuring GDP income approach o Take labor inputs profits is the GDP o Summing up all the incomes earned in the factor markets including wages and salaries interest rents and profits minus business taxes capital consumption and Measuring GDP expenditure approach o Take final consumer households and see what they are consuming o Of that final total output The difference between the total output and household spending GDP is the double counting Monetary policy influences economic activity in the system through the government s actions in managing the money supply and interest rates o Related to the money supply change the amount of money in the economy o Supply and demand Fiscal policy influences economic activity through the government s exercising of its taxing and spending activities o Control what the interest rate is going to be Chapter 2 Quiz Answers 4 1 Agriculture consists solely of the physical and biological production of agriculture 2 The US Agribusiness industry employs nearly 3 percent of the US population 3 Most farms and ranches are owned and operate by corporations FALSE most commodities FALSE FALSE about 20 percent are family owned 4 One trend in agriculture is that the number of farms has been decreasing TRUE long term trend number of farms decreasing 5 The majority of production in the US agriculture is accounted for by farms with greater than 100 000 TRUE Chapter 3 Consumer Behavior Demand Terms 1 27 14 Utility satisfaction from consumption o Different people derive different utility from different goods o Changes throughout our lives Marginal additional units you get from something Marginal utility additional satisfaction from consumption one additional amount of some good Law of Diminishing Marginal Utility o When someone consumes an additional amount of a good assuming the consumption of all other goods remains constant satisfaction from the consumption of that additional good decreases Not total utility marginal utility Each additional unit will have a decrease in marginal utility total Ordinality of utility utility will remain the same o While it may be helpful to think of how many more utils you feel by consuming an additional amount of the good no one person measures utils in the same way o As a result we measure utility by its order or ranking o It s not a specific number but a rank Understanding Ordinality o Example dog show We may know who is the winner followed by 1st runner up 2nd runner up 3rd runner up and so on However we do not know how much the winner beat the 1st runner up by the 2nd runner up by and so forth Consumer choice o In microeconomics we desire to understand how consumers choose to purchase one bundle of goods and over an alternative bundle 5 o The tool we use to measure how consumers choose among two different bundles of goods is known as an indifference curve Indifference curve o A