Economics for Agribusiness aims to develop Learners’ applied understanding of microeconomic concepts and their use in agribusiness decision-making. Learners analyse scarcity, opportunity cost, production possibilities, economic systems, demand, supply, price determination, production theory, factor rewards and market structures. On completion, Learners will be able to use economic reasoning to interpret agribusiness problems and propose informed responses to market and resource allocation issues. This unit forms part of ICM Level 5 Diploma in Agribusiness Management Professional Qualification.
Economic Concepts in Agribusiness
- Scarcity and choice: unlimited wants, limited resources, the economic problem, application to farm decisions
- Opportunity cost in farm and agribusiness decisions: value of next best alternative forgone
- Tables, equations, graphs and simple economic models: demand schedules, demand curves, supply schedules, supply curves, equilibrium, shifts vs movements
- Factors of production: land, labour, capital and enterprise, definitions, characteristics, rewards, agricultural specificity
- Application of economic reasoning to business problems: marginal analysis, sunk costs, fixed vs variable costs
Production Possibility Frontier (PPF) and Economic Systems
- Definition and illustration of the PPF: maximum combinations of two goods producible with available resources and technology, assuming efficient resource use, shape, straight line PPF
- Importance and limitations of the PPF: efficiency, inefficiency, unattainable, limitations
- Inward and outward shifts of the PPF: reduction in productive capacity, increase in productive capacity, agricultural examples for each shift
- Market, command, mixed and traditional economies: characteristics, strengths and weaknesses of each, agricultural examples
- Advantages and disadvantages of economic systems for agribusiness: market efficiency, price signals, government intervention
Demand Theory
- Demand and quantity demanded: relationship between price and quantity, specific quantity at a specific price
- Determinants of demand for agricultural products: price of product, price of substitutes, price of complements, consumer income, tastes and preferences, population, expectations, seasonal factors
- Utility and consumer choice: total utility, marginal utility, diminishing marginal utility, utility maximisation
- Demand schedules, curves and functions: plotting from data, slope, shifts
- Price elasticity of demand and business decision-making: PED calculation, interpretation, determinants, application to pricing decisions, value of PED for agricultural commodities
- Income elasticity of demand (YED): YED calculation, interpretation, worked agricultural examples, generic vs premium, application to market forecasting
- Cross elasticity of demand (XED): XED calculation, interpretation, worked agricultural examples, application to competitor analysis and complementary product strategy
Supply, Price and Market Equilibrium
- Supply and quantity supplied: distinction between supply (whole relationship) and quantity supplied (specific point)
- Determinants of supply and supply functions: price of product, input, technology, number of sellers, expectations, weather and climate
- Price elasticity of supply: PES calculation, interpretation, determinants, agricultural applications
- Price mechanisms, equilibrium and disequilibrium: equilibrium price and quantity, surplus, shortage
- Agricultural price policy: price floors, price ceilings, subsidies, government expenditure
- Tariffs and non-tariff barriers: tariffs, non-tariff barriers, impact on agricultural trade
- Applications to agricultural and food markets: using demand and supply analysis for agricultural commodities, analysing price changes
Production Theory and Market Structure
- Location decisions for agro-processing and farm input supply: proximity to raw materials, proximity to markets, transport costs, labour supply, infrastructure, agglomeration economies
- Rewards to factors of production: rent, wages, interest, profit
- Organisation, sales and distribution of goods and services: value chain, marketing channels, intermediaries, direct sales
- Market structures: pure competition, monopoly, monopolistic competition and oligopoly, characteristics and agricultural examples for each
- Implications of market structure for pricing and strategy: price taker vs price maker, market power, strategic behaviour, implications for farmers
Example Candidate Response Booklet
Example Candidate Response (ECR) Booklets are a source of crucial information for Centres and Candidates as they use real candidate responses. We ask Senior Examiners to comment on five or more responses in terms of why the mark was awarded with commentary about how to improve the answer (if necessary).
