Agricultural economics is an applied field of economics concerned with the application of economic theory in optimizing the production and distribution of food and fiber. Agricultural economics began as a branch of economics that dealt with land usage, it focused on maximizing the crop yield while maintaining a good soil ecosystem. Throughout the 20th century the discipline expanded and the current scope of the discipline is much broader. Agricultural economics today includes a variety of applied areas, having considerable overlap with conventional economics. Agricultural economists have made substantial contributions to research in economics, development economics, environmental economics. Agricultural economics influences food policy, agricultural policy, environmental policy. Economics has been defined as the study of resource allocation under scarcity. Agricultural economics, or the application of economic methods to optimizing the decisions made by agricultural producers, grew to prominence around the turn of the 20th century.
The field of agricultural economics can be traced out to works on land economics. Henry Charles Taylor was the greatest contributor with the establishment of the Department of Agricultural Economics at Wisconsin in 1909. Another contributor, 1979 Nobel Economics Prize winner Theodore Schultz, was among the first to examine development economics as a problem related directly to agriculture. Schultz was instrumental in establishing econometrics as a tool for use in analyzing agricultural economics empirically. One scholar summarizes the development of agricultural economics as follows: "Agricultural economics arose in the late 19th century, combined the theory of the firm with marketing and organization theory, developed throughout the 20th century as an empirical branch of general economics; the discipline was linked to empirical applications of mathematical statistics and made early and significant contributions to econometric methods. In the 1960s and afterwards, as agricultural sectors in the OECD countries contracted, agricultural economists were drawn to the development problems of poor countries, to the trade and macroeconomic policy implications of agriculture in rich countries, to a variety of production and environmental and resource problems."Agricultural economists have made many well-known contributions to the economics field with such models as the cobweb model, hedonic regression pricing models, new technology and diffusion models, multifactor productivity and efficiency theory and measurement, the random coefficients regression.
The farm sector is cited as a prime example of the perfect competition economic paradigm. In Asia, agricultural economics was offered first by the University of the Philippines Los Baños Department of Agricultural Economics in 1919. Today, the field of agricultural economics has transformed into a more integrative discipline which covers farm management and production economics, rural finance and institutions, agricultural marketing and prices, agricultural policy and development and nutrition economics, environmental and natural resource economics. Since the 1970s, agricultural economics has focused on seven main topics, according to a scholar in the field: agricultural environment and resources. In the field of environmental economics, agricultural economists have contributed in three main areas: designing incentives to control environmental externalities, estimating the value of non-market benefits from natural resources and environmental amenities, the complex interrelationship between economic activities and environmental consequences.
With regard to natural resources, agricultural economists have developed quantitative tools for improving land management, preventing erosion, managing pests, protecting biodiversity, preventing livestock diseases. While at one time, the field of agricultural economics was focused on farm-level issues, in recent years agricultural economists have studied diverse topics related to the economics of food consumption. In addition to economists' long-standing emphasis on the effects of prices and incomes, researchers in this field have studied how information and quality attributes influence consumer behavior. Agricultural economists have contributed to understanding how households make choices between purchasing food or preparing it at home, how food prices are determined, definitions of poverty thresholds, how consumers respond to price and income changes in a consistent way, survey and experimental tools for understanding consumer preferences. Agricultural economics research has addressed diminishing returns in agricultural production, as well as farmers' costs and supply responses.
Much research has applied economic theory to farm-level decisions. Studies of risk and decision-making under uncertainty have real-world applications to crop insurance policies and to understanding how farmers in developing countries make choices about technology adoption; these topics are important for understanding prospects for producing sufficient food for a growing world population, subject to new resource and environmental challenges such as water scarcity and global climate change. Development economics is broadly concerned with the improvement of living conditions in low-income countries, the improvement of economic performance in low-inc
Economics is the social science that studies the production and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents. Microeconomics analyzes basic elements in the economy, including individual agents and markets, their interactions, the outcomes of interactions. Individual agents may include, for example, firms and sellers. Macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, economic growth, the public policies that address these issues. See glossary of economics. Other broad distinctions within economics include those between positive economics, describing "what is", normative economics, advocating "what ought to be". Economic analysis can be applied throughout society, in business, health care, government. Economic analysis is sometimes applied to such diverse subjects as crime, the family, politics, social institutions, war and the environment; the discipline was renamed in the late 19th century due to Alfred Marshall, from "political economy" to "economics" as a shorter term for "economic science".
At that time, it became more open to rigorous thinking and made increased use of mathematics, which helped support efforts to have it accepted as a science and as a separate discipline outside of political science and other social sciences. There are a variety of modern definitions of economics. Scottish philosopher Adam Smith defined what was called political economy as "an inquiry into the nature and causes of the wealth of nations", in particular as: a branch of the science of a statesman or legislator a plentiful revenue or subsistence for the people... to supply the state or commonwealth with a revenue for the publick services. Jean-Baptiste Say, distinguishing the subject from its public-policy uses, defines it as the science of production and consumption of wealth. On the satirical side, Thomas Carlyle coined "the dismal science" as an epithet for classical economics, in this context linked to the pessimistic analysis of Malthus. John Stuart Mill defines the subject in a social context as: The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.
Alfred Marshall provides a still cited definition in his textbook Principles of Economics that extends analysis beyond wealth and from the societal to the microeconomic level: Economics is a study of man in the ordinary business of life. It enquires how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. Lionel Robbins developed implications of what has been termed "erhaps the most accepted current definition of the subject": Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Robbins describes the definition as not classificatory in "pick out certain kinds of behaviour" but rather analytical in "focus attention on a particular aspect of behaviour, the form imposed by the influence of scarcity." He affirmed that previous economists have centred their studies on the analysis of wealth: how wealth is created and consumed. But he said that economics can be used to study other things, such as war, that are outside its usual focus.
This is because war has as the goal winning it, generates both cost and benefits. If the war is not winnable or if the expected costs outweigh the benefits, the deciding actors may never go to war but rather explore other alternatives. We cannot define economics as the science that studies wealth, crime and any other field economic analysis can be applied to; some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, such comments abated as the economic theory of maximizing behaviour and rational-choice modelling expanded the domain of the subject to areas treated in other fields. There are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment. Gary Becker, a contributor to the expansion of economics into new areas, describes the approach he favours as "combin assumptions of maximizing behaviour, stable preferences, market equilibrium, used relentlessly and unflinchingly."
One commentary characterizes the remark as making economics an approach rather than a subject matter but with great specificity as to the "choice process and the type of social interaction that analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. A
Service economy can refer to one or both of two recent economic developments: The increased importance of the service sector in industrialized economies. The current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades; the relative importance of service in a product offering. The service economy in developing countries is concentrated in financial services, retail, human services, information technology and education. Products today have a higher service component than in previous decades. In the management literature this is referred to as the servitization of products or a product-service system; every product today has a service component to it. The old dichotomy between product and service has been replaced by a service-product continuum. Many products are being transformed into services. For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry.
They have found that the price elasticity of demand for "business solutions" is much less than for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts. Full cost accounting and most accounting reform and monetary reform measures are thought to be impossible to achieve without a good model of the service economy. Since the 1950s, the global economy has undergone a structural transformation. For this change, the American economist Victor R. Fuchs called it “the service economy” in 1968, he believes that the United States has taken the lead in entering the service economy and society in the Western countries. The declaration heralded the arrival of a service economy that began in the United States on a global scale. With the rapid development of information revolution and technology, the service economy has shown new development trends.
This is seen in green economics and more specific theories within it such as Natural Capitalism, as having these benefits: Much easier integration with accounting for nature's services Much easier integration with state services under globalization, e.g. meat inspection is a service, assumed within a product price, but which can vary quite drastically with jurisdiction, with some serious effects. Association of goods movements in commodity markets with negative commodity public bads so that no commodity can be traded without assuming responsibility for damage done by its extraction, shipping and sale - its comprehensive outcome Easier integration with urban ecology and industrial ecology modelling Making it easier to relate to the Experience Economy of actual quality of life decisions made by human beings based on assumptions about service, integrating economics better with marketing theory about brand value e.g. products are purchased for their assumed reliability in some known process.
This assumes that the user's experience with the brand is far more important than its technical characteristicsProduct stewardship or product take-back are words for a specific requirement or measure in which the service of waste disposal is included in the distribution chain of an industrial product and is paid for at time of purchase. That is, paying for the safe and proper disposal when you pay for the product, relying on those who sold it to you to dispose of it; those who advocate it are concerned with the phases of product lifecycle and the comprehensive outcome of the whole production process. It is considered a pre-requisite to a strict service economy interpretation of "commodity" and "product" relationships, it is applied to paint and other goods that become toxic waste if not disposed of properly. It is most familiar as the container deposit charged for a deposit bottle. One pays a fee to buy the bottle, separately from the fee to buy. If one returns the bottle, the fee is returned, the supplier must return the bottle for re-use or recycling.
If not, one has paid the fee, this can pay for landfill or litter control measures that dispose of diapers or a broken bottle. Since the same fee can be collected by anyone finding and returning the bottle, it is common for people to collect these and return them as a means of gaining a small income; this is quite common for instance among homeless people in U. S. cities. Legal requirements vary: the bottle itself may be considered the property of the purchaser of the contents, or, the purchaser may have some obligation to return the bottle to some depot so it can be recycled or re-used. In some countries, such as Germany, law requires attention to the comprehensive outcome of the whole extraction, distribution and waste of a product, holds those profiting from these responsible for any outcome along the way; this is the trend in the UK and EU generally. In the United States, there have been many class action suits that are product stewardship liability - holding companies responsible for things the product does which it was never advertised to do.
Rather than let liability for these problems be taken up by the public sector or be haphazardly assigned one issue at a time to companies via lawsuits, many accounting reform efforts focus on achieving full cost accounting. This is the financial reflection of the comprehensive outcome - noting the gains and losses to all parties involved, not just those investing or purchasing; such moves have made moral purchasing
Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is to appear on both sides of a trade". Its concern is thus the interrelation of financial variables, such as prices, interest rates and shares, as opposed to those concerning the real economy, it has two main areas of focus: corporate finance. The subject is concerned with "the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment", it therefore centers on decision making under uncertainty in the context of the financial markets, the resultant economic and financial models and principles, is concerned with deriving testable or policy implications from acceptable assumptions. It is built on the foundations of microeconomics and decision theory. Financial econometrics is the branch of financial economics that uses econometric techniques to parameterise these relationships. Mathematical finance is related in that it will derive and extend the mathematical or numerical models suggested by financial economics.
Note though that the emphasis there is mathematical consistency, as opposed to compatibility with economic theory. Financial economics has a microeconomic focus, whereas monetary economics is macroeconomic in nature. Financial economics is taught at the postgraduate level. Specialist undergraduate degrees are offered in the discipline; this article provides an overview and survey of the field: for derivations and more technical discussion, see the specific articles linked. As above, the discipline explores how rational investors would apply decision theory to the problem of investment; the subject is thus built on the foundations of microeconomics and decision theory, derives several key results for the application of decision making under uncertainty to the financial markets. Underlying all of financial economics are the concepts of present value and expectation. Calculating their present value allows the decision maker to aggregate the cashflows to be produced by the asset in the future, to a single value at the date in question, to thus more compare two opportunities.
An immediate extension is to combine probabilities with present value, leading to the expected value criterion which sets asset value as a function of the sizes of the expected payouts and the probabilities of their occurrence. This decision method, fails to consider risk aversion. In other words, since individuals receive greater utility from an extra dollar when they are poor and less utility when comparatively rich, the approach is to therefore "adjust" the weight assigned to the various outcomes correspondingly.. Choice under uncertainty here may be characterized as the maximization of expected utility. More formally, the resulting expected utility hypothesis states that, if certain axioms are satisfied, the subjective value associated with a gamble by an individual is that individual's statistical expectation of the valuations of the outcomes of that gamble; the impetus for these ideas arise from various inconsistencies observed under the expected value framework, such as the St. Petersburg paradox.
The concepts of arbitrage-free, "rational", pricing and equilibrium are coupled with the above to derive "classical" financial economics. Rational pricing is the assumption that asset prices will reflect the arbitrage-free price of the asset, as any deviation from this price will be "arbitraged away"; this assumption is useful in pricing fixed income securities bonds, is fundamental to the pricing of derivative instruments. Economic equilibrium is, in general, a state in which economic forces such as supply and demand are balanced, and, in the absence of external influences these equilibrium values of economic variables will not change. General equilibrium deals with the behavior of supply and prices in a whole economy with several or many interacting markets, by seeking to prove that a set of prices exists that will result in an overall equilibrium; the two concepts are linked as follows: where market prices do not allow for profitable arbitrage, i.e. they comprise an arbitrage-free market these prices are said to constitute an "arbitrage equilibrium".
Intuitively, this may be seen by considering that where an arbitrage opportunity does exist prices can be expected to change, are therefore not in equilibrium. An arbitrage equilibrium is thus a precondition for a general economic equilibrium; the immediate, formal, extension of this idea, the fundamental theorem of asset pricing, shows that where markets are as described —and are additionally complete—one may make financial decisions by constructing a risk neutral probability measure corresponding to the market. "Complete" here means that there
Education economics or the economics of education is the study of economic issues relating to education, including the demand for education, the financing and provision of education, the comparative efficiency of various educational programs and policies. From early works on the relationship between schooling and labor market outcomes for individuals, the field of the economics of education has grown to cover all areas with linkages to education. Economics distinguishes in addition to physical capital another form of capital, no less critical as a means of production – human capital. With investments in human capital, such as education, three major economic effects can be expected: increased expenses as the accumulation of human capital requires investments just as physical capital does, increased productivity as people gain characteristics that enable them to produce more output and hence return on investment in the form of higher incomes. Investments in human capital entail an investment cost.
In European countries most education expenditure takes the form of government consumption, although some costs are borne by individuals. These investments can be rather costly. EU governments spent between 3% and 8% of GDP on education in 2005, the average being 5%. However, measuring the spending this way alone underestimates the costs because a more subtle form of costs is overlooked: the opportunity cost of forgone wages as students cannot work while they study, it has been estimated that the total costs, including opportunity costs, of education are as much as double the direct costs. Including opportunity costs investments in education can be estimated to have been around 10% of GDP in the EU countries in 2005. In comparison investments in physical capital were 20% of GDP, thus the two are of similar magnitude. Human capital in the form of education shares many characteristics with physical capital. Both require an investment to create and, once created, both have economic value. Physical capital earns a return because people are willing to pay to use a piece of physical capital in work as it allows them to produce more output.
To measure the productive value of physical capital, we can measure how much of a return it commands in the market. In the case of human capital calculating returns is more complicated – after all, we cannot separate education from the person to see how much it rents for. To get around this problem, the returns to human capital are inferred from differences in wages among people with different levels of education. Hall and Jones have calculated from international data that on average that the returns on education are 13.4% per year for first four years of schooling, 10.1% per year for the next four years and 6.8% for each year beyond eight years. Thus someone with 12 years of schooling can be expected to earn, on average, 1.1344 × 1.1014 × 1.0684 = 3.161 times as much as someone with no schooling at all. Economy-wide, the effect of human capital on incomes has been estimated to be rather significant: 65% of wages paid in developed countries is payments to human capital and only 35% to raw labor.
The higher productivity of well-educated workers is one of the factors that explain higher GDPs and, higher incomes in developed countries. A strong correlation between GDP and education is visible among the countries of the world, as is shown by the upper left figure, it is less clear, how much of a high GDP is explained by education. After all, it is possible that rich countries can afford more education. To distinguish the part of GDP explained with education from other causes, Weil has calculated how much one would expect each country’s GDP to be higher based on the data on average schooling; this was based on the above-mentioned calculations of Jones on the returns on education. GDPs predicted by Weil’s calculations can be plotted against actual GDPs, as is done in the figure on the left, demonstrating that the variation in education explains some, but not all, of the variation in GDP; the matter of externalities should be considered. When speaking of externalities one thinks of the negative effects of economic activities that are not included in market prices, such as pollution.
These are negative externalities. However, there are positive externalities – that is, positive effects of which someone can benefit without having to pay for it. Education bears with it major positive externalities: giving one person more education raises not only his or her output but the output of those around him or her. Educated workers can bring new technologies and information to the consideration of others, they can act as an example. The positive externalities of education include the effects of personal networks and the roles educated workers play in them. Positive externalities from human capital are one explanation for why governments are involved in education. If people were left on their own, they would not take into account the full social benefit of education – in other words the rise in the output and wages of others – so the amount they would choose to obtain would be lower than the social optimum. A 2013 study assesses demand- and supply-side factors that affect educational access and attainment in development countries, it shows that addressing demand-side factors, such as geographic gaps between rural and urban areas, higher levels of population growth and child labour, can have greater impact on increasing levels of education in developing countries than supply-side factors, such as constructing additional school facilities, hiring more teachers etc.
The dominant model of th