Principles of Agricultural Economics

369 Pages·2013·4.01 MB·English

Principles of Agricultural Economics
T his book showcases the power of economic principles to explain and predict issues and
current events in the food, agricultural, agribusiness, international trade, natural resources,
and other sectors.
T he result is an agricultural economics textbook that provides students and instructors
with a clear, up-to-date, and straightforward approach to learning how a market-based eco-
nomy functions, and how to use simple economic principles for improved decision making.
W hile the primary focus of the book is on microeconomic aspects, agricultural economics
has expanded over recent decades to include issues of macroeconomics, international trade,
agribusiness, environmental economics, natural resources, and international development.
Hence, these topics are also provided with signifi cant coverage.
Andrew Barkley is Professor and University Distinguished Teaching Scholar, Department
of Agricultural Economics, Kansas State University, USA.
Paul W. Barkley is Professor Emeritus, Department of Agricultural Economics, Washington
State University, and Adjunct Professor, Department of Agricultural and Resource
Economics, Oregon State University, USA.
Principles of Agricultural
Economics
Andrew Barkley and Paul W. Barkley
First published 2013
by Routledge
2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN
Simultaneously published in the USA and Canada
by Routledge
711 Third Avenue, New York, NY 10017
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2013 Andrew Barkley and Paul W. Barkley
The right of Andrew Barkley and Paul W. Barkley to be identifi ed as authors of
this work has been asserted by them in accordance with the Copyright, Designs
and Patent Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or
utilized in any form or by any electronic, mechanical, or other means, now
known or hereafter invented, including photocopying and recording, or in any
information storage or retrieval system, without permission in writing from
the publishers.
Trademark notice : Product or corporate names may be trademarks or
registered trademarks, and are used only for identifi cation and explanation
without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging in Publication Data
Barkley, Andrew, 1962–
Principles of agricultural economics / Andrew and Paul W. Barkley.
p. cm.
1. Agriculture—Economic aspects—United States. I. Barkley, Paul W.
II. Title.
HD1761.B32 2013
338.1—dc23 2012039020
ISBN: 978-0-415-54069-8 (hbk)
ISBN: 978-0-415-54070-4 (pbk)
ISBN: 978-0-203-37114-5 (ebk)
Typeset in Times New Roman
by Cenveo Publisher Services
With deep gratitude to Mary Ellen Barkley and
Lela Kelly Barkley.
Contents
List of boxes xi
List of fi gures xiii
List of tables xvii
List of plates xviii
Preface xx
Acknowledgments xxi
List of abbreviations xxii
1 I ntroduction to the economics of agriculture 1
Synopsis 1
1.0 Introduction 1
1.1 E conomics is important and interesting! 4
1.2 What is economics, and what is it about? 9
1.3 Scarcity 11
1.4 The economic organization of society 12
1.5 A model of an economy 14
1.6 Trends in the agricultural economy 15
1.7 Using graphs 16
1.8 Absolute and relative prices 17
1.9 Examples of graphs 19
1.10 Summary 22
1.11 Glossary 23
1.12 Review questions 24
2 The economics of production 29
Synopsis 29
2.1 The production function 29
2.2 Length of time: immediate run, short run, and long run 36
2.3 Physical production relationships 3 9
2.4 The Law of Diminishing Marginal Returns 50
2.5 The three stages of production 51
2.6 Summary 52
2.7 Glossary 53
2.8 Review questions 54
viii Contents
3 The costs of production 57
Synopsis 57
3.1 Profi ts 57
3.2 Opportunity costs 59
3.3 Costs and output 64
3.4 Cost curve example: Vermont dairy farmer 67
3.5 Where do cost curves come from? 72
3.6 Constant, decreasing, and increasing cost curves 75
3.7 Summary 79
3.8 Glossary 80
3.9 Review questions 81
4 Profi t maximization 85
Synopsis 85
4.0 Introduction 85
4.1 Perfect competition 85
4.2 The profi t-maximizing level of input 88
4.3 The profi t-maximizing level of output 100
4.4 Profi ts and losses, break even, and shutdown points 104
4.5 Summary 112
4.6 Glossary 113
4.7 Review questions 114
5 Optimal input selection 117
Synopsis 117
5.0 Introduction 117
5.1 The relationship between inputs 117
5.2 Isoquants 119
5.3 Relative prices 121
5.4 Isoquant types 124
5.5 Optimal input decisions 130
5.6 Optimal responses to price changes 137
5.7 Summary 141
5.8 Glossary 142
5.9 Review questions 142
6 Optimal output selection 145
Synopsis 145
6.0 Introduction 145
6.1 The Production Possibilities Frontier (PPF ) 145
6.2 The Marginal Rate of Product Substitution (MRPS) 149
6.3 The isorevenue line 150
6.4 The optimal output combination 152
6.5 Price changes and the optimal output combination 154
6.6 Review of profi t-maximization rules 156
Contents ix
6.7 Summary 158
6.8 Glossary 158
6.9 Review questions 158
7 Consumer choices 161
Synopsis 161
7.0 Introduction 161
7.1 Rational behavior 161
7.2 Utility 163
7.3 The Law of Diminishing Marginal Utility 169
7.4 Indifference curves 170
7.5 The marginal rate of substitution (MRS) 178
7.6 The budget constraint 180
7.7 Consumer equilibrium 183
7.8 The demand for meat in Phoenix, Arizona 185
7.9 Summary 191
7.10 Glossary 192
7.11 Review questions 193
8 Supply and demand 197
Synopsis 197
8.0 Introduction 197
8.1 Supply 197
8.2 The elasticity of supply 203
8.3 Change in supply; change in quantity supplied 208
8.4 Determinants of supply 210
8.5 Demand 214
8.6 The elasticity of demand 220
8.7 Change in demand; change in quantity demanded 232
8.8 Determinants of demand 235
8.9 Summary 242
8.10 Glossary 244
8.11 Review questions 245
9 Markets 249
Synopsis 249
9.0 Introduction 249
9.1 What is a market? 249
9.2 Market equilibrium 250
9.3 C omparative statics 254
9.4 Price policies 261
9.5 Mathematical models (optional) 265
9.6 S ummary 268
9.7 Glossary 268
9.8 Review questions 269
x Contents
10 The competitive fi rm 273
Synopsis 273
10.1 Market structure 273
10.2 Characteristics of perfect competition 275
10.3 The perfectly competitive fi rm 277
10.4 The effi ciency of competitive industries 282
10.5 Strategies for perfectly competitive fi rms 287
10.6 Summary 289
10.7 Glossary 289
10.8 Review questions 290
11 Market power 293
Synopsis 293
11.1 Market power 293
11.2 Monopoly 294
11.3 Monopolistic competition 302
11.4 Oligopoly 305
11.5 Is big necessarily bad? 310
11.6 Summary 310
11.7 Glossary 311
11.8 R eview questions 311
12 Agriculture and the global economy 315
Synopsis 315
12.1 Gobalization and agriculture 315
12.2 Interdependence and gains from trade 316
12.3 Gains from trade example: Oklahoma beef and wheat 317
12.4 The principle of comparative advantage 321
12.5 Comparative advantage and trade 324
12.6 Summary 327
12.7 Glossary 327
12.8 Review questions 327
13 Economics, agriculture, and the environment 329
Synopsis 329
13.0 Introduction 329
13.1 The tragedy of the commons 330
13.2 Externality 332
13.3 Private bargaining: Coase 334
13.4 Summary 337
13.5 Glossary 337
13.6 Review questions 338
Glossary 339
Index 347
Boxes
1.1 The United States Department of Agriculture (USDA) 6
1.2 Trade barriers 8
2.1 The North American northern high plains region 30
2.2 Nitrogen fertilizer use in US agriculture 33
2.3 US beef production and consumption 33
2.4 Business cycles and agriculture 38
2.5 Iowa corn 39
2.6 Green revolution in India 49
2.7 Cotton in Mississippi 50
3.1 Oklahoma wheat 62
3.2 Dairy farming in Vermont 69
3.3 Walmart 77
3.4 Network eonomies 78
4.1 Feedlot 89
4.2 European price supports and the environment 97
4.3 Catfi sh in Mississippi 111
5.1 John Deere 125
5.2 Center-pivot irrigation 128
5.3 No-till agriculture 129
5.4 Conservation Reserve Program 130
6.1 Biofuels 155
7.1 Behavioral economics 162
7.2 California agriculture 166
7.3 Florida oranges 172
7.4 Meat consumption in China 187
8.1 Tobacco in North Carolina 221
8.2 Washington apples 224
8.3 US wheat exports 236
8.4 Natural and organic beef 241
9.1 The substitution of beef, pork, and chicken in the US 256
9.2 African agriculture and food aid 259
10.1 Cut fl ower production 285
11.1 Electricity 297
11.2 Monopolistic competition in the soft drink industry: Coke and Pepsi 303
11.3 The Organization of the Petroleum Exporting Countries (OPEC) 307
11.4 Meat packing 308