Understanding Basic Economic Principles

1 Lesson A3 1 UnderstandingBasic Economic PrinciplesUnit to AgribusinessProblem Area Basic Economic Principles in AgribusinessLesson Basic Economics PrinciplesNew Mexico Content Standard:Pathway Strand:Agribusiness SystemsStandard:VI:Use sales and marketing Principles to accomplish an AFNR business :VI-A:Conduct market methods of marketing products and Economic Principles to marketing ( , supply and demand). productsand service design(s).Student Learning in this lesson should result in studentsachieving the following objectives:1. Understand the resources needed for agricultural Understand the Law of Understand the Law of Understand the relationship between supply and Understand the Law of Diminishing Returns6. Understand the Principle Equimarginal Understand the relationship between Mexico Agribusiness Management Lesson Plan LibraryUnit A.

2 Problem Area 3. Lesson 1. Page of following resources may be useful in teaching this lesson:Recommended of the following resources should be selected to accompany thelesson:Agricultural Business Management Principles that Affect Production. Vocational Agri-culture Service, University of Illinois, Urbana, , Jerry D., et : Management, Marketing, Human ResourcesDevelopment, Communication, and , Illinois: Interstate Pub-lishers, Inc., 2001. (Textbook, Chapter 1)Other following resources will be useful to students and teachers:Little, : Applications to Agriculture and Agribusiness. Danville,Illinois: Interstate Publishers, Inc., 1997. (Textbook, Chapter 1)Steward, Jim, Raleigh Jobes, James Casey, and Wayne Purcell. Farm and RanchBusiness Management. Moline, Illinois: Deere & Company, 1992.

3 (Text and Stu-dent Manual Chapter 2).List of Equipment, Tools, Supplies, and FacilitiesWriting surfaceOverhead projectorTransparencies from attached mastersCopies of student lab following terms are presented in this lesson (shown in bold italics):CapitalCompetitive enterprisesComplementary enterprisesEquilibriumLaw of diminishing returnsLaborLandLaw of DemandLaw of SupplyManagementMarginal costMarginal returnPrinciple of Equimarginal ReturnsResourceSupplementary enterprisesNew Mexico Agribusiness Management Lesson Plan LibraryUnit A. Problem Area 3. Lesson 1. Page an interest approach that will prepare the students for the les-son. Teachers often develop approaches for their unique class and student situations. A possibleapproach is included the students into groups. Tell them they are preparing to begin an aquaculture production enter-prise.

4 Ask them to list the things they will need to get started. Ask them how they will know how manypounds of fish to produce. Relate to the students that with the study of economics, we can find these of Content and Teaching StrategiesObjective 1:Understand the resources needed for agricultural Problem:What resources are needed for an agricultural businesses?I. Aresourceis an item used to produce a product or everything in nature used in soil2. minerals3. things used in production that are cash2. equipment3. buildings4. the physical energy supplied by the decision making function of the Agricultural Business Management Principles that Affect Production, Section 1, or Chapter 1 inAgribusiness. Both resource texts provide good information to help students understand this 2:Understand the Law of Problem:What is the Law of Supply?

5 II. TheLaw of Supplystates that when the price of a product is lowered, with no change inother factors, less of the product will be Technology affects Generally, technology decreases the cost of production, making it cheaper to pro-duce the The rate that technology advances is not Mexico Agribusiness Management Lesson Plan LibraryUnit A. Problem Area 3. Lesson 1. Page Costs of production affects When prices of inputs change, the level of production often Generally, producers try to sell products for at least as much as the total cost of allthe Price of other products affects If a firm can produce a different product that is priced higher, it may change produc-tion to capitalize on higher Sometimes it is unfeasible to shift fixed assets to produce different products, an orchard to take advantage of higher corn Seasonal and cyclical production affects Some cycles of production are uncontrollable, time required for livestock toreproduce, time needed for plants to bear Certain fruits and vegetables are considerably cheaper when in-season.

6 Use TM: A3 1A to illustrate the Law of Supply. Have students read the suggested chapters in the recom-mended resource texts. Use class discussion and the overhead projector to demonstrate how the supplycurve shifts under different 3:Understand the Law of Problem:What is the Law of Demand?III. TheLaw of Demandstates that when the price of a product is increased with no change inother factors, less product will be Size of population affects With higher population more product will be All other things constant, demand is increased as population Tastes and preferences of consumers affects Tastes and preferences change with time and other Weather affects preferences, ( coats in the winter, barbecue foods in the sum-mer).C. Income and distribution of wealth affects Generally, higher income results in more products being More luxury items are purchased as incomes Relative prices of all goods and services affect With a limited budget, decisions to buy an item directly affects the amount ofanother item that can be When the price of a substitute item decreases, consumers will purchase more of When the price of a complement (items used together) decreases, more of the itemwill be Mexico Agribusiness Management Lesson Plan LibraryUnit A.

7 Problem Area 3. Lesson 1. Page TM: A3 1B, to discuss the Law of Demand. Follow the discussion up with assigned readings in therecommended texts. Use the overhead and classroom discussion to demonstrate how the demand curveshifts under different 4:Understand the relationship between supply and Problem:What is the relationship between supply and demand?IV. The interaction of supply and demand determines Price is found atequilibrium, where the supply and demand curves If demand curve shifts right, the price If supply curve shifts left, the price Foreign trade is a major player in price determination of agricultural students read the suggested chapters in the recommended texts. Use TM: A3 1C, to discuss the re-lationship between supply and demand. Assign LS: A3 1A, Understanding Supply and Demand to helpstudents apply the relationships between supply and 5:Understand the Law of Diminishing Problem:What is the principle of diminishing returns?

8 V. The Law of Diminishing Returns affects physical output and Economic Thelaw of diminishing returnsstates that as a variable resource is added to fixed re-sources, marginal output declines immediately or after an initial stage of increasing mar-ginal returns. Total output may increase at an increasing rate for a time, but then in-creases at a decreasing rate until it reaches its Values need to be provided to understand the law of diminishing Economic The additional cost of each unit of input is calledmarginal The additional return resulting from each unit of input is calledmarginal Net returns will be highest when marginal cost is equal to marginal Agricultural Business Management Principles that Affect Production Section 2, or Farm andRanch Business Management Chapter 6:Understand the Principle of Equimarginal Problem:What is the Principle of Equimarginal Returns?

9 VI. ThePrinciple of Equimarginal Returnsstates that to allocate a resource among several al-ternative uses in such a way that the marginal returns are equal in all Never invest capital in an alternative that does not provide returns equal to or greaterthan the amount Mexico Agribusiness Management Lesson Plan LibraryUnit A. Problem Area 3. Lesson 1. Page Always invest capital in the option that provides the greatest marginal returns, so long asthe returns are greater than the amount Agricultural Business Management Principles that Affect Production Section 2, or Farm andRanch Business Management Chapter 7:Understand the relationship between Problem:How do existing enterprises relate?VII. Many businesses combine several enterprises to maximize enterprisesare those where one enterprise supplements the income A sports stadium is often used for A lawn tractor can be used to move enterprisesare those where one enterprise produces the inputs for Soybeans used in rotation to leave nitrogen for Tree trimming service may sell enterprisesare those where one enterprise interferes with Enterprises competing for labor Students who work so much that they do not have enough time to Agricultural Business Management Principles that Affect Production Section 4 and 5, or Farmand Ranch Business Management pages 14 7 to 14 the review and summary of the lesson around the studentlearning objectives.

10 Call on students to explain the content associated with each can involve one or more of the following student activities usingattached lab sheets:LS: A3 1A Understanding Supply and should focus on student achievement of the objectives for the les-son. Various techniques can be used, such as student performance on the application activities. Asample written test is to Sample Test:Part One: Matching1=h,2=f,3=a,4=j,5=e,6=b,7=c,8=d, 9=i,10=gNew Mexico Agribusiness Management Lesson Plan LibraryUnit A. Problem Area 3. Lesson 1. Page Two: Completion1 = greater, invested2 = supplementary3 = marginal return4 = marginal costs, marginal returns5 = increasesPart Three: Short Answer1. Refer to Objective 1 to score this Refer to Objective 2 to score this Mexico Agribusiness Management Lesson Plan LibraryUnit A.