Demand and supply: the price mechanism in a market economy.

This chapter discusses the theories of demand and supply, including the factors affecting the demand for commodities (the price of the commodity itself, the incomes of consumers, the price of competitive (or substitute) goods, the price of complementary goods, and the tastes of consumers) as well as the factors affecting supply (the price of the good, the prices of other goods that firms could produce or do produce, the prices of factors of production, the state of technology, and the goals/objectives of firms). The significance of the price and income elasticities of demand to the agricultural sector is highlighted.

Production economics: theory of the firm.

This chapter introduces the scope of production economics and explains the major relationships studied in production economics, namely: factor-product, factor-factor, and product-product relationships. The impacts of advances in technology on the three central relationships are also discussed, as well as the implications for the agricultural industry.

Macroeconomics: the workings of the whole economy.

As a first step in analysing the workings of the aggregate economy and offering explanations for macroeconomic phenomena, this chapter constructs a simple model of the flow of income within the economy and uses it to explain what determines the level of that flow. The multiplier effect, the level of aggregate demand, the equilibrium level of national income, policies to control unemployment, inflation, the quantity theory of money, economic growth and its costs are then discussed.

International trade.

This chapter discusses the theory of comparative advantage, specialization, and trade in surpluses. A two-country and two-commodity model of the gains from specialization and trade is presented, which is then extended to include many countries and many commodities. Also discussed are: transactions involving currencies; arguments put in support of trade restrictions; balance of payments; monetary matters; and government manipulation of the trade balance and exchange rates.

Markets and competition.

Following an introduction into the functions of the price system and a general description of markets, this chapter examines three market models in more detail: first, perfect competition viewed from the levels of the individual agricultural producer and of the whole industry; secondly, monopoly; and thirdly, monopsony. The use of monopoly power in agriculture is discussed, as well as different types of price movements in agriculture.

What is economics?

This chapter introduces the essence of economics and explains the concepts of opportunity cost, scarcity, and choice, as well as the mechanism of allocating scarce resources. Also discussed are the scientific approach to economics and the problems faced by scientific economists.

Government policy for agriculture and rural areas.

This chapter deals with the problems agriculture and the rural economy faces and the policies used to tackle them. Following an introduction to the various steps in the policy process, specific problems and policies as they affect agriculture are discussed. These fall into two groups. First, there are policies of government to tackle general problems and which use agriculture in an instrumental way to achieve a policy aim. Second, there are policies to deal with problems arising from the economic characteristics of the agricultural industry itself - the intrinsic problems of agriculture.

Market failure: some problems of using the market to allocate resources.

This chapter explains why society acts to overcome market imperfections. Sections discuss: Adam Smith's theory of the 'invisible hand'; the value judgments of society; imperfect competition; monopoly; transaction costs; externalities associated with production and consumption; public goods; imperfect knowledge by consumers; and the macroeconomic reasons for intervening in the market system.

Explaining the behaviour of individuals: theory of consumer choice.

This chapter first introduces the concepts of utility, margin, and free goods. It then discusses two theories to explain consumer behaviour: (i) utility theory; and (ii) indifference theory. Both theories make the reasonable assumption that the objective the consumer has in mind is to get the greatest amount of satisfaction possible from the limited amount of purchasing power he or she possesses. The utility theory, while simple in concept, contains some difficulties which the second approach, using indifference curve analysis, overcomes. The concepts are illustrated with examples involving products such as bread, cigarettes, beer and milk.

Factors of production and their rewards: theory of distribution.

Following an introduction into the nature of production, this chapter explains four broad groups of factors of production in agriculture: (i) land; (ii) capital; (iii) labour; and (iv) entrepreneurship. Also discussed are the mobility and unemployment of the factors of production, as well as the allocation of the factors of production and their rewards.