WORDSPLASH Macroeconomics Elasticity Inelasticity Agricultural Treadmill Business Oligopoly

WORDSPLASH Macroeconomics • Elasticity • Inelasticity • Agricultural Treadmill Business • Oligopoly • Monopoly • Perfect Competition Resources • Wants • Opportunity Costs

Business Operation Models

Introduction to Agribusiness Module #3 Economics

Economics Ø Key Premise • Resources are always scarce • Wants are always unlimited Ø Scarcity always exists – shortages temporary Ø Needs are vital – wants are helpful Ø Value – measure of “utility” stated in $ Ø Opportunity costs – value of alternative buy

Economic Systems Ø Adam Smith – unseen hand Ø John Keynes – temporary government intervention into the economy is needed Ø Macroeconomics – the big picture Ø Microeconomics – individual decisions within the macro environment

Industry Structure - Perfect Ø Conditions • Many buyers and sellers with “perfect” knowledge • Little or no product differentiation • Relatively easy to enter or depart the market Ø Application to ag • • Production orientation Little influence in price individually Producers aren’t rivals Inelastic requiring little advertising or branding

Industry Structure - Monopoly Ø Opposite of perfect competition Ø Single seller or buyer Ø No rivals – price is set where P maxes profits Ø Limited by “next choice” Ø High barriers to entry and difficult to exit Ø Advertising and branding limited to image building and reputation Ø Ag – USDA, EPA, electric rates, elasticity varies

Industry Structure - Oligopoly Ø Increasing in number through consolidation Ø Few buyers, few sellers (oligopsony) Ø Few sellers – change in price quickly impacts the markets Ø Often a single leader that others follow Ø High barriers to entry Ø Advertising and branding is important Ø Mostly market oriented companies Ø Ag – most buyers, Giant/Weis, BSSF, feed dealers

Industry Structure – Monopolistic Competition Ø Most common Ø Substitutes are close but not exact Ø Price, selection, quality, service differentiate Ø Moderate to small barriers to entry Ø Elasticity varies Ø Advertising and branding are very important Ø Market orientation critical Ø Ag – diminishing, niche markets, image

Think-Pair-Share Scarcity vs. Shortage • • Macro vs. Micro • • Elastic vs. Inelastic • •

Two to Four • Write an economic scenario in small groups. – Choose a product. Describe a change in price. Describe the market competition. • Switch scenarios with another group. • Graph the scenario received from other group. – Determine if the scenario describes an elastic or inelastic market. Label the graph. • Combine groups and discuss outcome. • Edit graphs and share information as needed. – Write a summary of the outcomes. Turn in.

3– 2 -1 Describe 3 of the business models. What are 2 influences on elasticity? Describe 1 agricultural treadmill example.