In this lesson we have been introduced to the idea that the study of economics and management can help us better understand the environment farming businesses are required to operate in. We will take this further in the next lesson.

At a very simplistic level we can see individuals and their businesses responding to needs, wants, and the allocation of scare resources. Any allocation of resources will, however, invoke opportunity cost because there are insufficient resources. We have seen that we can in some ways anticipate the impact of shifts in the availability of resources by using a production possibility curve (PPC) to map opportunity cost.

Farmers and their businesses operate in two markets. Inputs are bought from the resource (factor) market while their outputs are sold in the product (goods) market. In order to be successful and generate a profit, farmers need to understand the market to be competitive.

Markets can, however, have different characteristics. There are at least four variations: competitive, monopoly, monopolistic or oligopolistic. Each market type dictates how profits can be generated.