👶🏻 Basic Concepts

Farm

• It means a piece of land where crops and livestock enterprises are taken up under a common management and has specific boundaries.

Agricultural Holding

• The area of the land for cultivation as a single unit held by an individual or joint family or more than one farmer on joint basis.
• The land may be owned, taken on lease or may be partly owned and partly rented.

Operational Holding

• It refers to the total land area held under single management for the purpose of cultivation.
• It excludes any land leased to another person.

Units of Accounting

• Application of inputs or measurement of output relate to technical unit, plant or an economic unit.
• Technical Unit: Single, convenient unit in production for which technical coefficients (input-output coefficients) are calculated. Examples are an acre, a hectare, a cow etc.
• Plant: Generally, refers to a group of technical units such as dairy enterprise or say 15-acre farm.
• Farm Firm: Aggregation of resources for which costs and returns are worked out as a whole. Farm-firm is also known as economic unit.
• Example: a farm holding.

Resources and Resource Services

Fixed Resources

• The resources whose use remains the same regardless of the level of production are called fixed resources.
• Volume of output does not directly depend up on these resources.
• Costs corresponding to these resources are known as fixed costs.
• Fixed resources exist only in the short run and in the long run they are zero.
• Example: land, machinery, farm buildings, equipment, implement, livestock etc.,

Variable Resources

• The resources whose use vary with the level of production are known as variable resources.
• Volume of output directly depends on these resources.
• Costs corresponding to these resources are known as variable costs.
• Variable resources exist both in the short run and in the long run.
• Seeds, Fertilizers, Plant protection chemicals, FYM, feeds, medicines etc., are examples of variable resources.

Flow and Stock Resources

👉🏻 Flow Resources

• There are some resources which should be used as and when they are available. They cannot be stored or stocked for a future use.
• Services are forthcoming like a flow. Examples are labour, Sunshine, land, farm buildings, machinery, equipment etc.

👉🏻 Stock Resources

• The resources which are not used in one period of production can be stored for a later period.
• Examples are seeds, fertilizers, feeds, manures, plant protection chemicals etc.
• Some factors of production are both flow and stock services. Whether a service should be defined as flow or stock depends on the length of the time period under consideration.
• Examples are land, machinery, buildings etc.
• A building lasts for 50 years provides a flow of services in each of the individual years, still it provides a stock of services for 50 years period.
• Similarly, a tractor gives flow of services for each year, but a stock service over 10 years.

Production

• It is a process whereby some goods and services called inputs are transformed into other goods called output is known as production. (Or)
• Production is a process of transformation of certain resources (inputs) into products.

Product

• It is the result of the use of resources. Product is any good or service that comes out of the production process.

Transformation Period or Production Period

• The time required for a resource to be completely transformed into a product is referred to as transformation period.
• The production period varies with the type of resource. Some resources are transformed into products in short time period (seeds, feed, fuel, fertilizers, manures, plant protection chemicals etc.). Others over a long period of time (machines, buildings etc) and still others are never completely transformed (land).
• The variations in production period give rise to complexities in decision making.

Choice Indicator

• It is a yardstick, or an index or a criterion indicating which of two or more alternatives is optimum or will maximize a given end.
• The choice indicator as a yardstick by which selection between alternatives is made, indicates the relative value which is attached to one as compared to another alternative.
• Choice indicators can be applied to problems in physical production as well as to those of profit maximization and consumer welfare. Choice indicators in economics are almost always given as ratios: examples are substitution ratios and price ratios.

Short Run and Long Run

• These are time concepts but they are not defined as fixed periods of calendar time.
• The short run is that period of time during which one or more of the production inputs is fixed in amount and cannot be changed.
• The level of production can be varied to a little extent by intensive use of fixed resources or by using more amounts of variable resources. During the short period, demand and supply change a little but not much.
• For example, at the beginning of the planting season, it may be too late to increase or decrease the amount of crop land owned or rented. The current crop production cycle would be a short run period as land is fixed in amount.
• The long run is defined as that period of time during which the quantity of all necessary productive inputs can be changed.
• The level of production can be varied to a greater extent by varying all the factors of production. Demand and supply conditions have plenty of time to adjust themselves.
• In the long run, a business can expand by acquiring additional inputs or go out of existence by selling all inputs.
• Depending on which input(s) are fixed, the short run may be anywhere from several days to several years. One year or one crop or livestock production cycle are common short run periods in agriculture.
• The distinction between fixed and variable resources holds true only in the short run. In the long run, all resources are variable.

Cost of Cultivation

• It refers to the cost of various inputs and input services used for raising a particular crop.
• It includes all the operations from land preparation to threshing, cleaning and taking the product from the field to home.
• Cost of cultivation always refers to unit area (acre or hectare).

Cost of Production

• It refers to the cost of various inputs and input services used to produce a unit quantity of output of a commodity.

Economy

• It is a system which provides people with means to work and earn a living.
• Economy consists of all sources of employment and production such as firms, factories, workshops, mines etc.

Economic System

• It is an institutional framework within which society carries the economic activities.

Efficiency

• It means absence of waste or using the economy’s resources as effectively as possible to satisfy people’s needs and desires.

Technical Efficiency

• It refers to the amount of output with given amounts of factors of production.
• In other words, technical efficiency is the ratio of output to input (Average physical product).

Technical efficiency = Y/X

• Where Y = Total output and X = Quantity of input

Economic Efficiency

• It is a ratio of value of output to value of input.

Economic efficiency = Y.Py / X.Px

Optimum

• It is the ideal condition in which the costs are minimum and profits are maximum.

Mono-period Resources

• The resources which can be used in a single production period are called mono period resources.
• Seeds, feeds, fuel, fertilizers, manures, plant protection chemicals are some of the examples of mono period resources.

Poly-period Resources

• The resources which provide their services for several years in production are known as poly period resources.
• Examples are land, livestock, machinery, equipment, buildings etc.

Enterprise

• It is defined as a single crop or livestock commodity being produced on a farm.

Farm Entrepreneur

• He is the person who thinks of, organizes and operates the business and is responsible for the losses and gains from the business.
• He is a pioneer in organizing and developing the farm firm.

Farm Manager

• He is a person who manages or supervises the business according to instructions of the entrepreneur.
• He is hired to manage the business.
• He is not generally responsible for any gain or loss to the business.