Principles of Agricultural Microeconomcs: An Introductory Guide

CONTENTS

Chapter 1 Introduction to Agricultural Microeconomics 
1.1 Introduction 
1.2 Clarifying the Term “Microeconomics” in the Context of Agriculture 
1.2.1 Fundamentals of Agricultural Microeconomics 
1.2.1.1 Supply and Demand 
1.2.1.2 Resource Allocation 
1.2.1.3 Farm Behavior 
1.2.2 Applications of Agricultural Microeconomics in Agribusinesses 
1.2.3 Specific Focus Areas Within Agricultural Microeconomics 
1.2.3.1 Production Decisions 
1.2.3.2 Market Behavior 
1.2.3.3 Resource Allocation 
1.2.4 The Interdisciplinary Nature of Agricultural Microeconomics 
1.2.5 Economic Rationale Behind the Study of Agricultural Microeconomics 
1.2.6 Practical Applications of Agricultural Microeconomics for Farmers, Agribusinesses, and Policymakers 
1.2.6.1 For Farmers 
1.2.6.2 For Agribusinesses 
1.2.6.3 For Policymakers 
1.2.7 Examples Demonstrating How Microeconomic Principles Help Making Informed Decisions in Agriculture 
1.2.7.1 Production Decisions 
1.2.7.2 Input Usage 
1.2.7.3 Pricing Strategies 
1.2.7.4 Resource Allocation 
1.2.7.5 Market Entry and Expansion 
1.3 Historical Perspectives in Agricultural Economics 
1.3.1 Evolution of Agricultural Economics as a Distinct Field of Study 
1.3.1.1 Early Roots 
1.3.1.2 Emergence as a Distinct Discipline 
1.3.1.3 Expansion of Focus 
1.3.1.4 Interdisciplinary Approach 
1.3.1.5 Technological Advances and Globalization 
1.3.1.6 Sustainability and Policy Challenges 
1.3.2 Contributions of Key Figures in The Development of Agricultural Economics e.g., Adam Smith, David Ricardo 
1.3.2.1 Adam Smith (1723–1790) 
1.3.2.2 David Ricardo (1772–1823) 
1.3.2.3 Johann Heinrich von Thünen (1783–1850) 
1.3.2.4 John Stuart Mill (1806–1873) 
1.3.2.5 Theodore W. Schultz (1902–1998) 
1.4 Chapter Summary and Conclusion 

Chapter 2 Supply and Demand in Agricultural Markets 
2.1 Introduction 
2.2 Understanding Demand and Supply Curves in Agricultural Markets 
2.2.1 Demand 
2.2.1.1 Law of Demand 
2.2.1.2 Demand Curve 
2.2.1.3 Movements Along the Demand Curve 
2.2.2 Supply 
2.2.2.1 Law of Supply 
2.2.2.2 Supply Curve 
2.2.2.3 Movements Along the Supply Curve 
2.3 Market Equilibrium 
2.4 Factors Shifting Demand and Supply in Agriculture 
2.4.1 Factors Shifting the Demand 
2.4.1.1 Population Growth 
2.4.1.2 Income Levels 
2.4.1.3 Consumer Preferences 
2.4.2 Factors Shifting the Supply 
2.4.2.1 Technological Advancements 
2.4.2.2 Weather Conditions 
2.4.2.3 Government Policies 
2.5 Elasticity of Demand and Supply in the Agricultural Sector 
2.5.1 Price Elasticity of Demand and Supply in Agriculture 
2.5.1.1 Price Elasticity of Demand: Responsiveness 
2.5.1.1.1 Interpretation of Price Elasticity of Demand 
2.5.1.2 Price Elasticity of Supply 
2.5.1.2.1 Interpretation of Price Elasticity of Supply 
2.5.2 Applications of Elasticity Measures in Agricultural Decision-Making 
2.5.2.1 Crop Selection and Production Planning 
2.5.2.2 Resource Allocation and Input Usage 
2.5.2.3 Market Pricing and Revenue Management 
2.5.2.4 Policy Design and Government Intervention 
2.6 Chapter Summary and Conclusion 

Chapter 3 Consumer Behavior in Agriculture 
3.1 Introduction 
3.2 Theory of Consumer Choice in Agricultural Markets 
3.2.1 Utility Theory and Consumer Preferences in Agriculture 
3.2.1.1 What Does “Utility” Mean in Agricultural Economics? 
3.2.1.2 Utility Theory 
3.2.1.3 Measuring Utility 
3.2.1.3.1 Revealed Preference Method 
3.2.1.3.2 Stated Preference Method 
3.2.1.3.3 Hedonic Pricing Method 
3.2.1.4 Total Utility 
3.2.1.5 Bundle of Goods 
3.2.1.6 Utils 
3.2.1.7 Rational Choice 
3.2.1.8 Utility Function 
3.2.1.9 Indifference Curves or Isoutilities 
3.2.1.10 Properties of Indifference Curves or Isoutilities 
3.2.1.11 The Implications of Indifference Curves or Isoutilities 
3.2.2 Concept of Marginal Utility 
3.2.2.1 Estimating Marginal Utility 
3.2.2.2 Interpretation of Marginal Utility 
3.2.2.3 Implications of Marginal Utility 
3.2.2.4 Law of Diminishing Marginal Utility 
3.2.2.4.1 Understanding the Law of Diminishing Marginal Utility 
3.2.2.4.2 Implications of the Law of Diminishing Marginal Utility for Consumer Behavior 
3.3 Budget Constraints 
3.3.1 Strategic Implications of Budget Line for Agricultural Stakeholders 
3.3.2 Numeric Form of a Budget Line 
3.3.3 Feasible vs. Non-Feasible Points Relative to Budget Line 
3.3.3.1 Points Below the Budget Constraint Line 
3.3.3.2 Points Above the Budget Constraint Line 
3.3.4 Implications 
3.4 Chapter Summary and Conclusion 

Chapter 4 Consumer Equilibrium in Agricultural Contexts 
4.1 Introduction 
4.2 Consumer Equilibrium 
4.3 Factors Affecting Consumer Equilibrium and Their Decision-Making 
4.3.1 The Budget Line Side 
4.3.1.1 Impact of Changes in Income on Food Choices and Consumer Equilibrium 
4.3.1.1.1 The Role of Income Elasticity in Food Choices 
4.3.1.1.2 Shifts in the Budget Line Because of Changes in Consumer Income 
4.3.1.1.3 Implications for Consumer Equilibrium 
4.3.1.2 Impact of Changes in Prices on Food Choices and Consumer Equilibrium 
4.3.1.2.1 Substitutes and Complements in Agricultural Markets 
4.3.1.2.2 Price Sensitivity and Market Dynamics 
4.3.1.2.3 Impact on Consumer Equilibrium 
4.3.2 The Utility Curve Side 
4.3.2.1 Preferences and Personal Values 
4.3.2.1.1 Sociocultural Influences 
4.3.2.1.2 Influence of Health and Sustainability on Consumer Choices 
4.3.2.1.3 Cognitive Biases and Decision Heuristics 
4.3.2.1.4 Framing and Choice Architecture 
4.4 Chapter Summary and Conclusion 

Chapter 5 Production Theory in Agriculture 
5.1 Introduction 
5.2 Principles of Production in Agricultural Settings 
5.2.1 Inputs and Outputs Definitions in Agriculture 
5.2.2 Factors of Production and Their Role in Agriculture 
5.2.2.1 Land 
5.2.2.2 Labor 
5.2.2.3 Capital 
5.2.2.4 Entrepreneurship 
5.2.3 Production Functions 
5.2.4 Understanding Total Production 
5.2.4.1 Definition of the Total Production 
5.2.4.2 Estimation of the Total Production 
5.2.5 Understanding Marginal Productivity 
5.2.6 Understanding Average Physical Product 
5.2.6.1 Implication of MP and AP in Agriculture and Farm Management 
5.2.7 Law of Diminishing Marginal Returns in Agricultural Production 
5.3 Technological Advancements and Efficiency in Agricultural Production 
5.3.1 Precision Agriculture 
5.3.2 Biotechnology 
5.3.3 Mechanization 
5.4 Chapter Summary and Conclusion 

Chapter 6 Costs of Production in Agriculture 
6.1 Introduction 
6.2 The Importance of Understanding the Costs of Production 
6.3 Defining Costs of Production 
6.3.1 Costs of Production 
6.3.2 Total Cost (TC) 
6.3.3 Fixed Costs (FC) 
6.3.4 Variable Costs (VC) 
6.4 Defining Average and Marginal Costs of Production 
6.4.1 Average Total Cost (ATC) 
6.4.2 Average Fixed Cost (AFC) 
6.4.3 Average Variable Cost (AVC) 
6.4.4 Marginal Cost (MC) 
6.5 Understanding Farm Revenue 
6.5.1 Farm Revenue 
6.5.2 MR 
6.5.3 Average Revenue (AR) 
6.6 What Does It Mean? 
6.6.1 Firm’s Maximum Profit Point 
6.6.2 Firm’s Break Even Point 
6.6.3 Firm’s Shut Down Point 
6.7 Chapter Summary and Conclusion 

Chapter 7 Market Equilibrium Under Perfect Condition 
7.1 Introduction 
7.2 Demand Curve 
7.3 Supply Curve 
7.4 Market Equilibrium 
7.4.1 Market Equilibrium in a Perfectly Competitive Market 
7.4.2 Determining Market Equilibrium 
7.5 Changes in Market Equilibrium 
7.5.1 Factors Influencing the Demand Curve 
7.5.1.1 Consumer Income 
7.5.1.2 Prices of Related Goods 
7.5.1.3 Consumer Preferences 
7.5.1.4 Expectations 
7.5.1.5 Number of Buyers 
7.5.2 Factors Influencing the Supply Curve 
7.5.2.1 Production Costs 
7.5.2.2 Technological Advances 
7.5.2.3 Government Policies 
7.5.2.4 Number of Sellers 
7.5.2.5 Expectations 
7.6 Chapter Summary and Conclusion 

Chapter 8 Market Structures in Agriculture 
8.1 Introduction 
8.2 What is a Market Structure? 
8.3 Importance of Understanding Market Structures 
8.4 Factors Determining Market Structure 
8.4.1 The Number and Size Distribution of Sellers and Buyers 
8.4.2 The Degree of Product Differentiation 
8.4.3 The Extent of Barriers to Entry 
8.5 Forms of Market Structure 
8.5.1 Perfect Competition 
8.5.1.1 Characteristics of Perfect Competition 
8.5.1.2 Example of Perfect Competition 
8.5.2 Monopolistic Competition 
8.5.2.1 Characteristics of Monopolistic Competition 
8.5.2.2 Example of Monopolistic Competition 
8.5.3 Oligopoly 
8.5.3.1 Characteristics of Oligopoly 
8.5.3.2 Example of Oligopoly 
8.5.4 Monopoly 
8.5.4.1 Characteristics of Monopoly 
8.5.4.2 Example of Monopoly 
8.6 Chapter Summary and Conclusion 

Chapter 9 Government Intervention in Agriculture Sector 
9.1 Introduction 
9.2 Various Functions of the Government 
9.3 Government Forms of Intervention in the Agriculture Sector 
9.3.1 Subsidies 
9.3.2 Insurance Programs 
9.3.3 Trade Policies 
9.3.4 Research and Development 
9.3.5 Regulatory Measures 
9.4 Rationale for Government Interventions in the Farm Sector 
9.4.1 Support and Protect an Infant Industry 
9.4.2 Curb Market Powers of Imperfect Competitors 
9.4.3 Provide for Food Security 
9.4.4 Provide for Consumer Health and Safety 
9.4.5 Provide for Environmental Quality 
9.5 Forms of US Government Interventions in Agriculture 
9.5.1 Adjusting Production to Market Demand 
9.5.2 Price and Income Support Payments 
9.5.2.1 Price Floor 
9.5.2.2 Direct Transfer Payments 
9.5.3 Foreign Trade Enhancements 
9.5.3.1 Tariffs and Quotas 
9.5.3.2 Export Subsidies 
9.5.4 Other Forms of Intervention 
9.5.4.1 Credit Subsidies 
9.5.4.2 Crop Insurance 
9.5.4.3 Animal and Plant Health Inspection 
9.5.4.4 Agricultural Marketing Services
9.6 Chapter Summary and Conclusion