Agribusiness Library
Lesson 060001
Agribusiness in a Free Enterprise System
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Objectives
1. Describe economics and its three major
components.
2. Define an economic system, and distinguish
between the types of economic systems.
3. Identify the characteristics of the American
economy.
4. Identify the specialization of agricultural
economics.
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Terms
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agricultural economics
allocates
capitalism
communism
economics
fascism
free enterprise system
free resources
mixed economic system
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needs
products
resources
scarcity
services
socialism
traditional system
wants
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What is economics, and what
are its major components?
Economics is the science that deals with the
production, distribution, and consumption of
wealth. (Three questions are commonly asked in
reference to economics: What goods should be
produced, and how much of each? How should the
goods be produced? Who should get what?) There
are three different components of economics:
scarcity, types of resources, and needs and wants.
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What is economics, and what
are its major components?
A. Scarcity is a situation where resources are lacking.
Economics studies the way society allocates
(distributes) its scarce resources. Economics wants to
know which individuals or groups receive which
goods and services. Not all resources are scarce;
readily available resources are called free
resources. Shortage and scarcity are not the same.
1. Scarcity exists as a result of limitations of a resource.
2. A shortage is a temporary situation.
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What is economics, and what
are its major components?
B. Resources are items that
are ready for use at any
time. Some resources are
considered factors of
production, such as land,
labor, capital, and
management. These
resources are used to make
products and to provide
services.
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What is economics, and what
are its major components?
1. Products are the goods produced to meet the needs
of consumers. For example, food, clothing,
electronics, automobiles, and buildings are products.
2. Services are activities provided to consumers for a
fee. For example, opening a checking account for
someone, stacking bales of hay in a haymow, or
driving someone across town in a taxi are services.
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What is economics, and what
are its major components?
C. Needs are things required
for daily living. Food and
shelter are examples of
needs. Wants are things
that are not necessary for
daily living. Generally,
the more people get, the
more they want.
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What is an economic system?
What types of economic systems exist?
Six types of economic systems have been identified
by economists: traditional system, capitalism,
socialism, fascism, command or communism, and a
mixed economic system. The difference between
each is the level of control by individuals versus
control by the government.
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What is an economic system?
What types of economic systems exist?
A. In the traditional system of economics, things are
done according to how they have been done in the
past. Decisions are based on beliefs handed down for
generations.
B. Capitalism is an economic system where the
individual owns the resources and can use his or her
time and resources as desired. Government
involvement is low, so the people must self-regulate
themselves. Private ownership allows for
competition.
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What is an economic system?
What types of economic systems exist?
C. Socialism is an economic system where the public
has ownership of all productive resources. In this
system, the government is responsible for making all
of the production decisions. The state establishes
prices, thus eliminating competition.
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What is an economic system?
What types of economic systems exist?
D. Fascism is an economic system where individuals
own the resources, but they produce goods as
directed by the government. Individuals who support
the government have more economic power than
those who do not. This economic system allows the
government to have complete control over nearly all
aspects of business.
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What is an economic system?
What types of economic systems exist?
E. Communism is an economic system
where one party controls all means of
production. Private individuals have
no control over resources. The
government exercises complete
control of the economy.
F. A mixed economic system is a
combination of all of the other
systems. The U.S. economic system
is mixed.
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What are the characteristics of the
American economy?
There are five characteristics of the American
economy (free enterprise system): little or no
government control, freedom of enterprise and
choice, the right to own property, profit incentive,
and chance for competition.
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What are the characteristics of the
American economy?
A. The government’s role in a free enterprise system is
to write the rules of trade and to protect the public
while keeping the economy in balance. Individuals
own and have choices over their resources, but they
must act within the limits of the law.
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What are the characteristics of the
American economy?
B. Americans have freedom of choice within the U.S.
economic system. Free enterprise refers to an
individual’s freedom to own and control the
production of resources.
1. For example, a farmer can purchase a
piece of land and keep other individuals off
of it.
2. Americans have the right to own private property,
including land, automobiles, and more. (There is no
limit on how much you can own, aside from your own
budgetary limitations.)
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What are the characteristics of the
American economy?
C. Freedom of choice is the freedom to make decisions
about what should be produced. For example, a
farmer can decide which crops to grow on his or her
land. Sometimes, the government sets safety
standards meant to protect consumers. For example,
it is illegal for a farmer to cultivate poisonous plants
for sale to consumers.
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What are the characteristics of the
American economy?
D. Profits you make as a result of your private property
are yours to keep after reasonable taxation. This
represents a profit incentive—the ability to make a
profit from the private property you own. Profit
drives people to produce more products for others to
buy.
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What are the characteristics of the
American economy?
E. Competition is a rivalry among businesses for
customers or markets. Businesses survive based on
their ability to produce products competitively.
Consumers will be most willing to purchase from the
producer with the lowest price when all other
attributes of the good or service are the same.
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How is agricultural economics
specialized?
Agricultural economics is the application of
economic principles to agricultural problems.
Therefore, agricultural economics is an applied
science rather than a basic science. In a very broad
sense, agricultural economics studies the entire
food and agricultural industry beginning with the
suppliers of inputs to farmers (such as seed,
fertilizer, and fuel) and ending with the consumers
who purchase food in grocery stores and
restaurants.
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How is agricultural economics
specialized?
A. One area of emphasis of agricultural economics is
farm production.
1. For example, agricultural economics is
interested in how farmers decide the price
they pay for an acre of land.
2. As another example, agricultural economics
is interested in the factors that influence
the price of outputs (e.g., corn, soybeans,
wheat, and market steers).
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How is agricultural economics
specialized?
B. Agricultural economics includes agricultural and
commodity marketing, agricultural finance, rural
development, and agricultural policy.
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Review
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What three questions are commonly asked in
reference to economics?
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What are the six types of economic systems?
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What is the main difference among those six?
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What are the five characteristics of the American
economy?
What term is defined as “the application of
economic principles to agricultural problems.”
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