Economics is Everywhere

By: Sam Park, Huy Huynh, Grant Martin, and Cory Scott

Invisible, but Real: The Cost of our Decisions

Led by esteemed professor Michael Ellerbrock, PhD, students this week were given an introduction to the field of agricultural economics. Dr. Ellerbrock emphasized that every choice we make, whether it be deciding how many hours to sleep or what classes to take, is dictated by an economic reality. From an agricultural perspective, farmers must apply economic theories to determine what crops to harvest with their limited resources. There are many variables to consider when making these decisions, including soil quality, profitability, and total yield. Through the Production Possibilities Curve (PPC), a graphical representation of the maximum output possibilities for two goods, students learned how to deal with scarce resources by comparing their opportunity costs. When farmers decide to reserve land for corn production, the opportunity cost they incur is the forgone benefit of producing an equivalent amount of another crop. It is important to be aware of all associated costs before pursuing any one course of action. The concave shape of the PPC graph reflects how opportunity cost increases as production expands. Comparing the cases of a polluted and clean environment, Dr. Ellerbrock further demonstrated how any change in the inputs or the state of the economy can alter the shape of the curve.

Is Water More Valuable than Diamonds?

Proposed by 18th century philosopher Adam Smith, the Diamond-Water Paradox investigates the apparent contradiction in pricing between diamonds and water. The principle of diminishing marginal utility supplies an answer to the paradox, stating that the perceived value of, or satisfaction gained from, a particular good declines with each additional increment consumed. Rather than valuing a good for its total benefit, this principle suggests that true value instead lies in each successive unit of a product. This concept explains why people put very little value on their next glass of water, despite water being a necessary factor of survival, while putting very high value on their first or second diamonds, which are unessential to human life.

 

Citations:

The first image was taken by a group member

Second image: https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwinxZraxvPUAhULOD4KHaq1AmkQjRwIBw&url=https%3A%2F%2Fwww.youtube.com%2Fwatch%3Fv%3DqG4RkKJ34zg&psig=AFQjCNHByUDbMFvPqetEQ6BfZXhNoFNH8g&ust=1499392560771972

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