Agricultural Marketing Reviewer PDF

Agricultural Marketing Overview Definition: The process of moving agricultural products from farms to consumers. Functions: Includes production, processing, distribution, and sales, ensuring fair returns for farmers and satisfaction for consumers. Three Elements of Marketing: 1. Services - adds val...

Agricultural Marketing Overview Definition: The process of moving agricultural products from farms to consumers. Functions: Includes production, processing, distribution, and sales, ensuring fair returns for farmers and satisfaction for consumers. Three Elements of Marketing: 1. Services - adds value to the product 2. Point of Production 3. Point of consumption Agricultural marketing consists of series of services performed from point of: a. production b. consumption c. market place d. arrival Sub-sectors in Philippine Agriculture: 1. Crops 2. Livestock 3. Fisheries and Aquaculture 4. Forestry Importance of Agricultural Marketing - Encourages entrepreneurial orientation in farming. - Aims for a market-centric rather than a production-oriented approach. - Supports small-scale farmers with extension workers and institutions. Characteristics of Agricultural Products 1. Perishability: Requires proper handling and refrigeration to reduce spoilage. 2. Seasonality: Products are often available only during specific seasons. 3. Bulkiness: Transportation and storage are costly and difficult. 4. Quality Variation: Challenges in grading and standardization. 5. Irregular Supply: Dependence on natural conditions causes supply and price fluctuations. 6. Small-Scale Holdings: Scattered production complicates marketing and supply estimation. 7. Pricing Challenges: Farm prices are often unstable, leading to income instability. 8. Processing Needs: Adds value to products but increases costs. Utility- refers to how a product can be useful to customers in a way that convinces them to make a purchase Types of Utility in Agricultural Marketing 1. Form Utility: Transformation of raw materials into finished goods. 2. Place Utility: Availability of products at convenient locations (e.g., retail stores, online platforms). 3. Time Utility: Availability of products when needed, achieved through storage. 4. Possession Utility: Ease of acquiring products. Market and Marketing Services - Market: A platform where buyers and sellers exchange goods. Key Elements: - Buyers a. ultimate - refers to the end consumers or users of a product or service in the supply chain b. industrial - buy goods for resale/for the purpose of transforming it into other forms - Sellers - suppliers of goods and services - Trading Facilities - refers to physical or virtual platforms where buying and selling of commodities, goods, or services takes place a. Supermarket b. Market c. Public Market d. Retail Market Marketing Services: - functions perform on a product to alter its form, time, place, or characteristics that involves cost and added value to a product and somebody has to pay for it Production Services: - services added prior to the point of production Marketing Services: - services added after the point of production a. Processing b. Transporting c. Storing d. Selling e. Buying Agricultural Marketing Systems - a complex system within which various subsystem interact with each other and with the different marketing environments Marketing Environments a. Microenvironment b. Macroenvironment Characteristics of the Agricultural Marketing Systems 1. It has objectives and goals to achieve. 2. It has components of participants that performs a specific function and all the necessary job between the decision to produce and the final consumption of product. 3. It needs institutional arrangements (refer to the various organizational structures, policies, regulations, and relationships that govern agricultural activities and interactions among stakeholders within the agricultural sector). 4. It needs planning and management decision structure which control and coordinate the forces at work. 5. It has spatial and temporal dimensions and most often commodity specific. Agricultural Marketing Subsystems 1. Producer Subsystem: Farmers or corporate farms initiating production. 2. Channel Subsystem: Intermediaries ensuring product availability at the right place, time, and form. 3. Flow Subsystem: Facilitates financial and informational flows. 4. Functional Subsystem: Activities like assembly, dispersion, and equalization. 5. Consumer Subsystem: Final product destination. 6. Environmental Subsystem: Includes climatic, socio-cultural, economic, and legal factors. Marketing Process - Concentration: Gathering products at a central point. - Equalization: Balancing supply with demand. - Dispersion: Distributing products to consumers. Approaches to Marketing Study 1. Commodity Approach: Focus on individual products. 2. Institutional Approach: Focus on middlemen and institutions. 3. Functional Approach: Focus on functions like buying, selling, and transportation. 4. Management Approach: Decision-making for achieving marketing objectives. Marketing Functions 1. Exchange Functions: Buying and selling. 2. Physical Functions: - Storage: Ensures product availability year-round. - Transportation: Moves goods to the right place. - Processing: Adds value through manufacturing. 3. Facilitating Functions: - Standardization, financing, risk-bearing, market intelligence, research, and demand creation. Marketing Channel - It refer to an inter-organizational system made up of a set of interdependent institutions and agencies involved in the task of moving products from their point of production to the point of consumption. The various stages at which products pass from the farm to the consumer Middlemen - Are those individual or business concerns that specialized in performing various marketing functions involved in the purchase and sell of goods as they are moved from producers to consumers. Traders - responsible for bringing the products available at the right time, place and form. Types of Middlemen a. Merchant middlemen - take the title to and therefore own the products they handle; buy and sell for their own gain.  b. Agent middlemen - acts as representative of their clients; do not take title to and therefore do not own the products they handle; income is in the form of fees and commission. 1. Merchant Middlemen - Contract buyers - Grain millers - Wholesalers - Assembly wholesale or viajeros, Financer wholesaler bodegeros/cuartejera, Shippers, Wholesalers, Wholesale –retailer, Retailer 2. Agent Middlemen - Commission agent - Normally take over the physical handling of the product; arranges for the terms of sale, collection, deducts his fees and remits the balance to the principal. 3. Broker - Usually does not have physical control of the product; ordinarily follows the instructions of his principal closely and has less discretionary power in price negotiations than the commission agent. Marketing Channels of Selected Farm Products 1.Contract-buyers - Type of intermediaries most prevalent in the fruits and vegetables. Buying contracts between the buyer and the producer are made even before the product is harvested. 2.Wholesalers - They sell to retailers, other wholesalers, and industrial users, but do not sell in significant amounts to ultimate consumers. 3. Commission Agent - Takes over the physical handing of the product, arranges for the terms of sales, collects, deducts his fees, and remits the balance to his principal. Grains, poultry and livestock are commonly sold to wholesalers and processors through the commission agent. 4. Wholesaler- Retailer - Business operators who get the produce in large quantities either from the wholesalers or contract buyers. They sell mainly to retailers on wholesale basis but they also retail to rest and maintain permanent stalls in the market. 5. Assembler-wholesaler - Buy from producers and contract-buyers, assemble the products in large volume and transport them to market centers, locally known as the viajeros that sell products on wholesale basis. 6.Butcher-retailers - Middlemen who buy live poultry and livestock from the wholesaler or direct from the producer and sell them in dressed or carcass form. 7.Retailers - Product handlers who serve as the last link in the marketing channel. Have greater utility both in rural and urban centers by selling directly to consumers. Market Structure - How a market is organized based on the characteristics that determine the relationship among the various sellers in the market, among the various buyers, and between the various buyers and sellers in a market. Classification of Market Structure a. Purely competitive market - Number of buyers and sellers is sufficiently large so that no individual can perceptively influence price by his decision to buy or sell. Product is sufficiently homogenous so that the product of one firm is essentially a perfect substitute for that of another firm. b. Absolute monopoly- distinguishing characteristics is a single seller. c. Monopolistic competition - Large number of sellers offer differentiated products which are dose substitutes, but the individual sellers are able to differentiate it based on trade name, style, quality, service, location, or other factors. d. Oligopoly - Market with a few sellers. Each firm produces a large fraction of the industry's total product wherein the action of one firm in the industry can greatly influence other firms. *Pure oligopoly- Sellers produce homogeneous product *Differentiated oligopoly- firms produce similar but not identical products V. Monopsony- market with single buyer b. Market conduct Market Conduct - How firms adjust to the markets in which they are engaged as buyers or sellers. Behavior or pattern that the firm exhibits in the market - Behavior or pattern that the firm exhibits in the market Market Performance - How much the economic resource of the industry's market behavior or conduct deviates from the best possible contribution it can make to achieve relevant socio-economic goals. Marketing Margins (Price Spread) - The difference between prices at different level of the Marketing System - The difference between what the consumer pays and what the producer receives for his produce. Marketing Margins Definition: Difference between consumer price and farmer’s earnings. Types: - Absolute Margin: Selling price - Buying price. - Percentage Margin: (Absolute Margin / Selling Price) x 100%. Ways to subdivide Marketing Margin into different Components 1. Marketing Cost - returns to the factors of production used in providing the processing and marketing services rendered between the farmers and consumers. Components of Marketing Costs: 1. Wage - return to labor 2. Interest - return to borrowed capital 3. Rent - return to land & buildings 4. Profit - return to entrepreneurship 2. Marketing charges - returns according to the various agencies or institutions involved in the marketing of products. Components of Marketing Charges: 1.Returns to retailers for their services 2. Returns to wholesaler for their activities 3. Returns to processors for their manufacturing activities 4. Returns to assemblers for the work they performed Types of Margins: Margins - indicates the profitability of a product, service, or business. - the higher the number, the more profitable the business. a. Absolute Margin = Selling price - Buying price b. Percentage Margin = (Absolute Margin/Selling Price) x100% - Percent Mark-up = (Absolute Margin/Buying Price) x 100% Market share - is the percentage of the total revenue or sales generated in a market 1.Farmer's Share = (Farm Price/Final Retail Price) x 100% Ex. Farm price:10 Retail price:20 Farmer's share = (10/20) x 100% = 50% 2. Middleman's share = Middlemen's Absolute Margin / Final Retail Price x 100% a. Wholesaler Share (WS) = WS Absolute Margin/Final Retail Price x 100% b. Contact Buyer Share (CB) = CB Absolute Margin/Fin al Retail Price x 100% c. Retailer Share (R) = Absolute Margin/ Final Retail Price x 100% Marketing Mix (4Ps) 1. Product: Includes fresh, semi-processed, and processed goods. - Packaging, labeling, branding, and trademarks add value. 2. Price: Reflects the value consumers place on a product. 3. Place: Ensures product availability in strategic locations. 4. Promotion: Advertising, personal selling, publicity, and sales promotion. Two (2) classifications of products: 1. Consumer goods - are products used by the ultimate consumer or households and in such forms that they can be used without further processing. 2. Industrial goods - are products that are sold primarily for use in producing other goods or rendering services, as contrasted with goods destined to be sold primarily to the ultimate consumer. Product - Packaging- it is the total presentation of the product.  - Label - it is a part of the package which carries information about the product, to communicate with those who purchase or might purchase the product. - Brand - a letter, word or symbol used to identify a product - Brand name - refers to the part of a brand that can be vocalized - Brand Mark - refers to the part of a brand that cannot be vocalized such as its symbol, design or distinctive packaging. - Trademark - is a brand or part of a brand that is given legal protection because it is assigned exclusively. Price - The amount of money that is given up to acquire a given quantity of goods or services. - The value assigned to the utility one receives from products or services. Place/Distribution - It is where the product is purchased. Promotion - It is the personal and/or impersonal process of assisting a perspective customer to buy a commodity to favor upon an idea that has commercial significance to the seller. Promotional methods a. Advertising - any form of non-personal presentation and promotion of ideas, goods or services in a medium paid for by an identified sponsor. b. Personal Selling - oral presentation with one or more prospective purchasers/buyers for purposes of making sales. c. Publicity - non-personal stimulation of demand for a product, service or idea by planting commercially significant news about it in a medium that is not paid for by the sponsor. d. Sales Promotion - those marketing activities, other than personal selling, advertising and publicity that stimulates consumer purchasing and dealer effectiveness. What is Economics? Economics - the word comes from the Greek word oikonomia, which means the management of household. - In its original sense the meaning of a strong economy is essentially one where a household is well managed. - The study of how society manages its scarce resources. - The study of how choices are made. What Economics Is All About Economics: the study of how society manages its scarce resources. Scarcity: the limited nature of society’s resources. Examples: - how people decide what to buy, how much to work, save, and spend  - how firms decide how much to produce, how many workers to hire - how society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs Classification of Economics The two main branches of economics: Microeconomics - The study of how households and firms make decisions and how they interact in markets. Households/Individuals: - What to consume?-choice of goods and service they want to consume. - How much to consume? - allocate their limited income to maximize their total economic welfare. Business firms: Decisions on what to produce? How to produce? How much to produce? What price to charge? How to fight the competition? How to promote sales to maximize profit? Market - is a group of buyers and sellers of a particular good or service. The buyers - as a group determine the demand for the product. The sellers - as a group determine the supply of the product. Macroeconomics - The study of economy-wide phenomena, including inflation, unemployment, and economic growth. Economy - a collection of many households and many firms interacting in many markets. The Basic Managerial Functions: - POSDCORB is an acronym for Planning, Organizing, Staffing, Directing, Coordinating, Reporting, and Budgeting. - It was created in 1937 by members of President Roosevelt's administrative committee, Luther Gulick and Lyndall Urwick. - The theory of organizations that is still very useful for today’s managers. - The ultimate objective of these managerial functions is to ensure maximum return from the utilization of firm’s resources. - Managers have to take decisions at each stage of their functions in view of business issues and implement decisions effectively to achieve the goals of the organization. POSDCoRB Planning - Establish objectives (specific and measurable results companies planned to attain). Organizing - Organize structure, division of works, subdivisions, arrangements of people, reporting lines and coordination. Staffing - Appointing of the right people to the right roles, so that they can work effectively. Directing - Ongoing job or process of motivating, communicating, instructing, leading, and supervising employees in order to ensure that they are working towards the accomplishment of organizational goals. Coordinating- ensuring alignment between departments, resources, and goals. It helps to ensure that tasks are properly delegated, that resources are used efficiently, and that communication between departments and teams is improved. Reporting - Keep people in the organization up to date about the business operations and performance. It provide them with news, results and general information in formal reports and regular company updates, to boost their confidence, productivity and commitment. Budgeting - Balance your expenses with your income by planning, estimating and being disciplined with your finances. Budgeting allows managers to control organization's income and expenditure, and can determine the success of the business. Scarcity - it means that society has limited resources and therefore cannot produce all the goods and services people wish to have. - Just as each member of a household cannot get everything she wants, each individual in a society cannot attain the highest standard of living to which she must aspire. - it means that the demand for a good or service is greater than the availability of the good or service. - Human needs and wants are always unlimited while the means of providing them (resources) are scarce. Thus, choices must be in order of priority of how to satisfy them. Scarcity vs. Shortage in Economics Scarcity- is a perpetual condition where wants, needs, and satisfaction of people are not satisfied because of limited resources. - The Law of Scarcity provides that people must make choices to fulfill their unlimited needs and wants, given the limited resources. - It refers to the situation where unlimited wants and needs exceed limited resources. - It occurs when there are not enough resources to produce all the goods and services that people desire. - It's a pervasive condition that exists because resources such as time, money, labor, and natural resources are limited, while human desires are unlimited. Scarce intangible resources - time, skills, and attention, others. Shortage  - is a temporary condition where the demand on a certain commodity or service cannot be met by current supply. This means that after a certain period, shortage can be resolved. - A short-term deficit of a good. - It is determined by price. - It is possible to make more. - Always a temporary situation. - Granting, there are some commodities that require longer periods to be supplied, these can still be met after a given time. Example: Increase the production of the commodity, Training more people in producing goods or service. Factors of Production The economic resources used as inputs to produce goods and services. The 4 factors of Production: 1. Land - Rent 2. Labor - Wage 3. Capital - Interest 4. Entrepreneurship/Entrepreneurial Abilities - Profit - In economics, factors of production are the resources required for the production of goods and services. These factors are essential inputs used in the production process to create output. Land - This refers to all natural resources used in the production process. It includes not only the physical land but also the minerals, forests, water resources, and other natural gifts. Land is considered a passive factor of production because it is not manmade. Labor - Labor encompasses the physical and mental effort exerted by individuals in the production process. It includes the work done by both skilled and unskilled workers. Labor is an active factor of production because it involves human input and decisionmaking. a. Unskilled Workers - Unskilled workers typically perform tasks that require minimal training or specialized knowledge. They often engage in manual labor or simple repetitive tasks that do not necessitate advanced skills or qualifications. - Unskilled labor is generally characterized by low wages - Examples of unskilled labor include cleaners, construction laborers, and some types of factory workers. b. Skilled Workers - Skilled workers, on the other hand, possess specialized training, education, or expertise that enables them to perform more complex tasks or jobs requiring specific skills. - Skilled workers often require formal education, vocational training, or on-the-job experience to acquire their expertise.  - Skilled labor tends to command higher wages due to the increased demand for their specialized skills and knowledge. - Examples of skilled labor include tradespeople such as electricians, plumbers, as well as professionals such as engineers, doctors, lawyers, and computer programmers. A 25-year long term vision to end poverty in the country by 2040 - The Ambisyon Natin 2040 (Our Ambition 2040) - The Government of the Philippines has adopted a 25-year long term vision to end poverty in the country by 2040. - The Ambisyon Natin 2040 (Our Ambition 2040) vision states that by 2040 thePhilippines will be a prosperous, predominantly middle-class society where no one is poor. An executive order was signed by President Rodrigo Duterte on October 11, 2016 adopting the 25-year long-term vision for the country. - All future Philippine development plans to be crafted and implemented until 2040 will be anchored on Ambisyon Natin 2040. This will ensure the sustainability and consistency of government strategies, policies, programs and projects across political administrations. Factors of Production Capital - Capital refers to the man-made resources used in the production process to produce other goods and services. It includes physical capital such as machinery, equipment, buildings, and infrastructure, as well as financial capital like money and investments. - Capital is essential for enhancing productivity and efficiency in production. Entrepreneurship - Entrepreneurship refers to the ability and willingness of individuals to take risks, innovate, and organize the other factors of production to produce goods and services. - Entrepreneurs play a crucial role in identifying opportunities, mobilizing resources, and making decisions to create value in the economy. DECISION MAKING is the essence of economics! How people make decisions? How peopleinteract? How the economy work as a whole? The Principles of HOW PEOPLE MAKE DECISIONS - Economics teaches you that making a choice means giving up something. The Ten Principles of Economics - These principles provide a framework for understanding how individuals, firms, and societies make decisions and interact in the market. 1. People Face Trade-offs  - Because resources are scarce, individuals, firms, and societies must make choices. To obtain more of one good, they must give up some of another. This principle highlights the concept of opportunity cost. 2. The Cost of Something Is What You Give Up to Get It - This principle emphasizes opportunity cost. The true cost of a decision is not just the monetary cost but also the value of the next best alternative that must be forgone. 3. Rational People Think at the Margin - Rational decision-makers weigh the marginal benefits and marginal costs of their choices. They make decisions by comparing the additional benefits of a little more of something with the additional costs. 4. People Respond to Incentives - Incentives, such as rewards or penalties, influence people's behavior. Changes in incentives can lead to changes in behavior. 5. Trade Can Make Everyone Better Off - Trade allows individuals and nations to specialize in what they do best and exchange goods and services, resulting in higher overall welfare. 6. Markets Are Usually a Good Way to Organize Economic Activity - Markets allocate resources through the interactions of buyers and sellers, resulting in efficient outcomes. Prices serve as signals that guide decision-making. 7. Governments Can Sometimes Improve Economic Outcomes - While markets are generally efficient, there are cases where government intervention can improve economic welfare by addressing market failures such as externalities, public goods, and monopolies. 8. The Standard of Living Depends on a Country's Production - The level of a nation's income and standard of living depends on its ability to produce goods and services. 9. Prices Rise When the Government Prints Too Much Money - This principle relates to inflation and the quantity theory of money, stating that increases in the money supply led to inflation in the long run. - In economics, inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. 10. Society Faces a Short-Run Trade-off Between Inflation and Unemployment. - This principle reflects that there is a trade-off between inflation and unemployment in the short run. Opportunity Cost  - Opportunity costs is the cost of the next best alternative use of time and money when choosing to do one thing rather than another. - Opportunity costs represent the potential benefits an individual, investor, or business misses out on when choosing one alternative over another. - Every decision we make carries an opportunity cost. If we don’t budget wisely, we end up wasting time and energy on things that don’t matter. All decisions involve trade-offs. Examples: - For every hour you study one subject, you give up one hour you could have used studying the other. - Consider our parents deciding how to spend their income for food, clothing, or a family vacation or for their children’s college education. When they choose to spend an extra peso on one of these goods, they have one less peso to spend on some other goods. - Protecting the environment requires resources that could otherwise be used to produce consumer goods. HOW PEOPLE MAKE DECISIONS Principle #1: People Face Tradeoffs - Society faces an important tradeoff: efficiency vs. equality Efficiency: - When society gets the maximum benefits from its scarce resources. - NO one can be made better off without making someone else worse off. - Economic efficiency is when all goods and factors of production in an economy are distributed or allocated to their most valuable uses and waste is eliminated or minimized. Equality: - Equity in economics is defined as the process to be fair in an economy that can range from the concept of taxation to welfare in the economy. It also means how the income and opportunity among people are evenly distributed. - When prosperity is distributed uniformly among society’s members. - Everyone gets exactly the same treatment. Tradeoff: - To achieve greater equality, could redistribute income from wealthy to poor. But this reduces incentive to work and produce, shrinks the size of the economic “pie.” Economic pie is a term often used to describe the size of the economy. Over time, economists and others track how the economic pie is growing. Society is an entity composed of individuals, groups, and organizations. seeking to stay together by sharing traditions, values, languages, interests, and. other things. The 4 simple entities of an economic system due to the fact they carry out the basic monetary activities of production and intake in an economic system are the consumers, households, firms, and the government. Production Possibilities Frontier (PPF)  - The Production Possibilities Frontier (PPF) - is a graph that shows all the different combinations of output of two goods that can be produced using available resources and technology. - The PPF shows that there are limits to production. - The PPF shows a trade-off between two commodities: when one increases, the other should decrease, whatever it takes. The PPF - Production possibilities frontier - A graph: combinations of output that the economy can possibly produce - Given the available Factors of production and technology - Example: Two goods: computers and wheat One resource: labor (measured in hours) Economy has 50,000 labor hours per month available for production HOW PEOPLE MAKE DECISIONS Principle #2: The Cost of Something Is What You Give Up to Get It - Making decisions requires comparing the costs and benefits of alternative choices. - The opportunity cost of any item is what you give up to get that item. - It is the relevant cost for decision making. Example: College athletes who can earn millions if they drop out of school and play professional sports are well aware that their opportunity cost of attending college is very high. It is not surprising that they often decide that the benefit of a college education is not worth the cost. PPF Shifters 1.Change in the quantity or quality of resources. 2.Change in Technology HOW PEOPLE MAKE DECISIONS Principle #3: Rational People Think at the Margin Rational people. - Rational people often make decisions by comparing marginal benefits and marginal costs. Rational behavior - refers to a decision-making process that is based on making choices that result in the optimal level of benefit or utility for an individual Margin- means edge Marginal change - is adjustment around the edges of what you are doing. Making decisions - by evaluating costs and benefits of marginal change –a small incremental adjustment to an existing plan of action. HOW PEOPLE MAKE DECISIONS Principle #4: People Respond to Incentives - Incentive: something that persuades a person to act, i.e. the prospect of a reward or punishment.  - Rational people respond to incentives. Examples: - When gas prices rise, consumers buy more small cars and fewer gas-consumption vehicles. - When cigarette taxes increase, teen smoking falls. - The Policy on mandatory seatbelts (Unintended Gov’t consequences- it reduces the benefits of slow and careful driving.) HOW PEOPLE INTERACT Principle #5: Trade Can Make Everyone Better Off - Rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods. - Countries also benefit from trade & specialization: - Get a better price abroad for goods they produce - Buy other goods more cheaply from abroad than could be produced at home. Trade - The buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. - We tend to give opportunities to everyone to also achieve a higher standard of living. Importance: Markets are important in economic growth. International Trade - Trade between people or firms in different countries. - We trade internationally: Goods Services Why do countries Trade with each other? - It allows countries to specialize in what they do best - to access a greater variety of goods and services - to expand markets - countries can buy a greater variety of goods and services at a lower cost Economic activities that are done at the international level. IMPORT - The purchase of goods and services abroad EXPORT - The sale of goods and services abroad Net Export - The value of goods and services sold abroad minus the goods and services bought from the rest of the world. Trade Surplus - if an economy exports more than it imports. Trade Deficit - occurs when import is greater than export. Specific reasons why a country can gain from Trade 1.Mutual gain from Voluntary Exchange of Existing Goods 2.Increased Competition 3.Division of Labor 4.Better use of skills and resources in different countries 1.Mutual gain from Voluntary Exchange of Existing Goods - Mutual gains mean that both sides/countries have something to gain from the negotiation. - Voluntary exchange is mutually beneficial because it helps both buyers and sellers gain benefits. 2. Increased Competition - International trade makes the home market competitive. - Competition leads to lower prices, higher quality goods and services, greater variety, and more innovation. 3. Division of Labor - It is identified as the key reason for trade. - It encourages markets/countries to become specialized, which enables workers to develop greater skills and experience through the repetition of the same process. - It reduces costs since each worker can specialize and develop expertise in a certain area. - The gain in trade is the reduction in cost per unit. 4. Better use of skills and resources in different countries - Countries can gain from trade if they export things (product) that they are good at producing and import products that other countries are good in producing. Specialization - It is when a nation or individual concentrates its productive efforts on producing a limited variety of goods. - It oftentimes has to forgo producing other goods and relies on obtaining those other goods through trade. - a particular area which someone concentrates on or is an expert in. - In food production, we rely on the specialized farmers. Economics is a Social Science - Economics is considered a social science. - It applies scientific methods to analyze the production, distribution, and consumption of goods and services. - Economics seeks to understand how individuals, businesses, governments, and societies allocate scarce resources to satisfy unlimited wants and needs. - Economics employs rigorous empirical analysis, mathematical modeling, and theoretical frameworks to study human behavior in economic systems.  - It does not adhere to the same experimental methods as natural sciences like physics or chemistry, biology, astronomy, and geology. - Instead, it focuses on the study of human behavior and social interactions, including disciplines such as psychology, sociology, anthropology, political science, and geography. Social scientists examine human societies, cultures, institutions, and relationships. Supply and Demand - The law of supply and demand is the theory that prices are determined by the relationship between supply and demand. - If the supply of a good or service exceeds the demand for it, prices will fall. If demand exceeds supply, prices will rise. Demand - Is the quantity of goods and services buyers are willing and able to buy. - Demand schedule - a table that shows how much of a product or service people are willing and able to buy at different prices. - Demand curve - is a graph that shows the relationship between the price of a product and the quantity of that product that consumers will buy. Markets and Competition - A market is a group of buyers and sellers of a particular product. - In a perfectly competitive market: All goods exactly the same Buyers & sellers so numerous that no one can affect market price — each is a price taker Demand - The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. - Law of demand: the claim that when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises, all other things being equal (ceteris paribus). In other words, there is an inverse relationship between price and quantity demanded. - Ceteris paribus - a Latin phrase that generally means "all other things being equal." Consumers desire for a particular product depends on: ability to buy willingness to buy time period Demand is the quantity of a good or service that customers are willing and able to purchase/buy during a specified period under a given set of economic conditions.  Conditions to be considered include the price of the good considered, prices and availability of related goods, expectations of price changes, consumer incomes, consumer tastes and preferences, advertising expenditures, and so on. Demand schedule: a table that shows the relationship between the price of a good and the quantity demanded Demand Curve: It is a graphical representation of the relationship between product price and the quantity of the product demanded. It is downward sloping. Remember: - A change in the price of a good or service causes a movement along a specific demand curve, and it typically leads to some change in the quantity demanded, but it does not shift the demand curve. A linear demand curve is a graphical representation of the relationship between the price of a product or service and the quantity demanded by consumers, where the relationship is linear or straight-line in nature. In other words, as the price of the product changes, the quantity demanded changes proportionally, resulting in a straight-line relationship between price and quantity demanded on a graph. Key characteristics of a linear demand curve include: 1.Constant Slope The slope of a linear demand curve remains constant throughout its length. This means that the rate at which quantity demanded changes in response to changes in price is consistent along the curve. 2. Negative Slope: In most cases, linear demand curves slope downward from left to right, indicating an inverse relationship between price and quantity demanded. As the price of the product decreases, the quantity demanded increases, and vice versa. This negative slope reflects the law of demand, which states that, all else being equal, there is an inverse relationship between price and quantity demanded. Demand Curve Shifters - The demand curve shows how price affects quantity demanded, other things being equal. - These other things are non-price determinants of demand (i.e., things that determine buyers demand for a good, other than the good’s price). - Changes in them shift the D curve Demand Curve Shifters: No. of Buyers - Increase in # of buyers increases quantity demanded at each price, shifts D curve to the right. Demand Curve Shifters: Income - Demand for a normal good is positively related to income.  - Increase in income causes increase in quantity demanded at each price, shifts D curve to the right. (Demand for an inferior good is negatively related to income. An increase in income shifts D curves for inferior goods to the left.) Demand Curve Shifters: Prices of Related Goods - Two goods are substitutes if an increase in the price of one causes an increase in demand for the other. Example: pizza and hamburgers. An increase in the price of pizza increases demand for hamburgers, shifting hamburger demand curve to the right. Other examples: Coke and Pepsi, laptops and desktop computers, CDs and music downloads Demand Curve Shifters: Prices of Related Goods - Two goods are complements if an increase in the price of one causes a fall in demand for the other. Example: computers and software. If price of computers rises, people buy fewer computers, and therefore less software. Software demand curve shifts left. Other examples: college tuition and textbooks, bagels and cream cheese, eggs and bacon Demand Curve Shifters: Tastes - Anything that causes a shift in tastes toward a good will increase demand for that good and shift its D curve to the right. Example: The Atkins diet became popular in the 90s, caused an increase in demand for eggs, shifted the egg demand curve to the right. Demand Curve Shifters: Expectations - Expectations affect consumers’ buying decisions. Examples: If people expect their incomes to rise,their demand for meals at expensive restaurants may increase now. If the economy sours and people worry about their future job security, demand for new autos may fall now. Supply - The quantity supplied of any good is the amount that sellers are willing and able to sell. - Law of supply: the claim that the quantity supplied of a good rises when the price of the good rises, other things equal Supply schedule: A table that shows the relationship between the price of a good and the quantity supplied. Supply Curve Shifters  - The supply curve shows how price affects quantity supplied, other things being equal. - These other things are non-price determinants of supply. - Changes in them shift the S curve Supply Curve Shifters: Input Prices Examples of input prices:wages, prices of raw materials. - A fall in input prices makes production more profitable at each output price, so firms supply a larger quantity at each price, and the S curve shifts to the right. Supply Curve Shifters: Technology - Technology determines how much inputs are required to produce a unit of output. - A cost-saving technological improvement has the same effect as a fall in input prices, shifts S curve to the right. Supply Curve Shifters: Number of Sellers - An increase in the number of sellers increases the quantity supplied at each price, shifts S curve to the right. Supply Curve Shifters: Expectations Example: - Events in the Middle East lead to expectations of higher oil prices. - In response, owners of Texas oilfields reduce supply now, save some inventory to sell later at the higher price. - S curve shifts left. In general, sellers may adjust supply* when their expectations of future prices change. (*If good not perishable) Surplus (a.k.a. excess supply): - when quantity supplied is greater than quantity demanded Shortage (a.k.a. excess demand): - when quantity demanded is greater than quantity supplied