Introduction to Agricultural Economics Agricultural Economics 105 Spring 2016 First Hour Exam Version 1

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1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2016 First Hour Exam Version 1 There is only ONE best, correct answer per question. Place your answer on the attached sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. HAND IN BOTH THE TEST AND ANSWER SHEET. Each question is worth 2 1/2. 1. The Law of Diminishing Marginal Utility states a. as consumption per unit of time increases, marginal utility decreases. b. as consumption per unit of time increases, marginal utility increases. c. marginal utility will continuously decrease, but will never reach zero. d. marginal utility will increase, then decrease, but will never reach zero. e. marginal utility is constant. 2. Indifference curves intersect at a. the point of consumer equilibrium. b. the point of the least-cost combination of goods. c. the point that represents the maximum utility level. d. indifference curves never intersect. e. both a and c are correct. 3. The slope of any indifference curve is the a. marginal rate of technical substitution. b. marginal rate of substitution. c. marginal utility. d. marginal costs. e. marginal rate of returns. 4. Assume Johnny has a monthly budget of $48. He can buy either hot dogs or Pepsi, assume he exhausts his entire budget. If he buys only Pepsi, he can buy 16 cans of Pepsi, whereas, if he buys only hot dogs, he can buy 48 hot dogs. What is the price of hot dogs and Pepsi? a. $3, $1 b. $1, $3 c. $16, $48 d. $48, $16 e. $1, $16

2 2 5. Negative sloped indifference curves between blueberries and strawberries indicate a. if a consumer increases the consumption of blueberries, he/she must increase the consumption of strawberries to maintain the same utility. b. utility is increasing as you move outward. c. increasing the consumption of both blueberries and strawberries increases utility. d. increasing the consumption of blueberries while decreasing the consumption of strawberries increases utility. e. if a consumer increases the consumption of blueberries, he/she must decrease the consumption of strawberries to maintain the same utility. 6. On e-bay and Amazon ten sellers listed brand new Horizon 631 back braces including shipping for prices between $99 and $509 / brace. This appears to not be a competitive market because a. there are only a few buyers of any product on these the two commercial web sites. b. different sellers are selling different braces. c. back braces are a medical product and sellers sell them for whatever the patient will pay. d. there are different prices for the same product. e. e-bay and Amazon are commercial web sites and not economic markets. 7. What would cause a shift in the demand for apples? a. An increase in the price of apples. b. A decrease in the price of apples. c. A large-scale contamination of apples with the Zika virus. d. Both a and b. e. None of the above. 8. The Dixie Chicken wants to increase their revenues. As an enterprising student from AGEC 105, you tell the manager that the own-price elasticity for chicken strips is Frustrated by the term own-price elasticity, the manager angrily asks: Just tell me what I should do to the price of my chicken strips! What would you recommend to the manager? a. Increase the price. b. Decrease the price. c. Keep the price the same. d. Lower his/hers marginal costs of producing chicken strips by buying from a cheaper supplier. e. Insufficient information is provided, one needs to know the quantity demanded.

3 3 9. Buy Baylor Supermarket sold 6 pounds of yaupon flour at a price of $3 per pound last month. This month they raised the price to $7 per pound and sales dropped to 4 pounds. What is the own-price elasticity of demand for flour for Buy Baylor Supermarket? What does this say about the demand for flour? a. 0.5, demand is inelastic b. -0.5, demand is elastic c. -2, demand is elastic d. -2, demand is inelastic e. -0.5, demand is inelastic 10. What would you expect the cross-price elasticity to be between coffee and creamer? a. Greater than zero b. Less than zero c. Zero d. Infinite e. None of the above 11. Aggregate demand is the summation of all relevant individual consumers demand. To be relevant a consumer must have both and. 12. A firm s short-run supply curve is given by. a. price above its breakeven price. b. changes in a firm s average variable costs. c. its marginal cost curve above average variable costs. d. its marginal cost curve above average total costs. e. the area between shutdown and breakeven price. 13. Approximately what percent of each dollar spent on food products goes to farmers? a. 5% b. 7% c. 12% d. 17% e. 36% 14. What would you expect the market level own-price elasticity of bottled water to be relative to Dasani water? a. Bottled water should be more inelastic than for Dasani water. b. Bottled water should be more elastic than for Dasani water. c. Because water is a necessity for life, the elasticities of both bottled water and Dasani water should be around unitary. d. Because water is a necessity for life, own-price elasticities for bottled water regardless of the brand should be very inelastic. e. Both should be the same.

4 4 Refer to the following table for questions 15 17: 15. What price is Tast-E-Juice s breakeven price? a. $3.32 b. $1.23 c. $1.30 d. $0.01 e. $ What price is Tast-E-Juice s shutdown price? a. $2.37 b. $3.73 c. $1.30 d. $1.23 e. $ What are Tast-E-Juice s fixed costs? a. 0 b. 15 c. 7.5 d. 5 e Refer to the following figure for question Which point minimizes utility? a. A b. B c. C d. D e. Both A and B Output and Costs of Production for Tast-E-Juice Output AVC ($) ATC ($) MC ($) The price substitution effect is defined as a. the total change in the quantity demanded of good x caused by a change in the price of good x. b. the part of the change in quantity demanded resulting from a change in relative prices. c. the total change in the quantity demanded of good x caused by a change in the price of good y. d. the part of the change in quantity demanded resulting from a change in income. e. the part of the change in quantity demanded resulting from a change in technology.

5 5 Refer to the following figure of Demand for Beef for questions A movement from point A to B could be caused by a. decrease in the price of beef. b. increase in the price of beef. c. new strain of Mad Cow disease decreases the sales of beef. d. more people in the market buying beef. e. Both a and d. 21. What is the change in consumer surplus when price decreases from P 1 to P 2? a. P max P 2 B b. P 2 C Q10 c. P max P 1 A d. P 1 P 2 BA e. P 2 B Q 2 0 Refer to the following table for questions What is the MPP for the third worker? a. 2 b. 5 c. 10 d. 13 e Stage III of production occurs at how many workers? a. 3 b. 7 c. 9 d. 11 e Stage I of production ends at number workers. a. 1 b. 3 c. 5 d. 7 e. 9 Workers Suzy s Lemonade Stand Lemonade Output TPP MPP APP

6 6 25. Fixed costs are a. costs that vary with level of output. b. costs that do not vary with level of output. c. equal to total costs minus total variable costs. d. equal to total costs plus total variable costs. e. Both b and c. Refer to the following figure for question 26. Assume hot dogs and popcorn are normal goods. 26. Which of the following statements best describes the shift in the budget curve from BC 1 to BC 2? a. Increase in the price of hot dogs. b. Decrease in the price of hot dogs. c. Increase in the price of popcorn. d. Decrease in the price of popcorn. e. Increase in income. f. Decrease in income 27. Which of the following situations could result in a shift of supply of tomatoes? a. New harvesting technology easing the burden on pickers b. Price of tomatoes increases dramatically c. Drought conditions in tomato-growing areas d. Both a and c e. All of the above 28. Which graph best describes the effect of the listeria contamination on demand for Blue Bell ice cream? a. A b. B c. C d. D e. A and C f. B and D g. A and B h. C and D i. None of the above

7 7 29. Last month Ralph received $80 a month from mowing lawns and he purchased 6 bottles of Gatorade. This month, due to a warm Texas February, he has mowed more lawns and earned $120. He bought 10 bottles of Gatorade this month. What kind of good is Gatorade to Ralph? a. Normal and luxury b. Normal and necessity c. Inferior d. Contingent e. None of the above 30. At least 11 Apps are available that allow people to compare prices at both the national and local outlets by scanning the bar code of a product. Which of the following statements would best sum up why an economist sees these Apps contributing to market a market being a competitive market? a. Guarantees purchasers will buy at the lowest price. b. Provides market information to both the consumer and producers/sellers. c. Insures there are a large number of sellers and buyers in the marketplace by including both national and local prices. d. Allows consumers to compare prices at a low cost (saving resources by not driving and visiting individual stores) e. Does nothing to improve market competitiveness as the Apps do not sell any products just provide prices. 31. The children of College Station have been entrepreneurial recently. Spurred on by warmer than average temperatures, 345 new lemonade stands have been established in town. Strict city code states that lemonade can only be made with 2 cups of water, 1 cup of sugar, and 3 ounces of fresh-squeezed lemon juice. There are no city codes limiting the construction of new lemonade stands. Why is this market not considered a perfectly competitive market? a. Products are homogenous. b. Perfect information exists. c. There are many buyers and sellers. d. There are no barriers to entry or exit. e. This market could be considered a perfectly competitive market. 32. When the price of one good changes there is an income effect because a. one of the goods is an inferior good. b. the price change represents a change in real or effect income. c. of the diminishing marginal rate of substitution. d. both goods are normal goods. e. one good is and inferior good and the other is a luxury normal good.

8 8 For questions refer to the following figure. The market price is $8 / unit. 33. Total revenue at the profit maximizing level of output is a. area 8, D, 100, 0 b. area 6, H, 100, 0 c. area 5, F, 100, 0 d. area 8, D, H, 6 e. area 0, 10, E, Total costs at the profit maximizing level of output is a. area 6, C, 75, 0 b. area 6, H, 100, 0 c. area 8, D, H, 6 d. area 5, F, 100, e. area 0, 10, E, Profits at the profit maximizing level of output is a. area 8, D, 100, 0 b. area 6, H, 100, 0 c. area 5, F, 100, 0 d. area 8, D, H, 6 e. area 0, 10, E, At his current consumption level, John s marginal utility for consuming M&M s is 2 units, and the price is $4. His marginal utility for consuming a snickers bar is 6 units and the price is $1.50. Which of the following best describes John s situation? a. John is maximizing his utility at this point. b. John is not maximizing his utility; he needs to eat more M&M and more snickers. c. John needs to increase his income. d. John is not maximizing his utility; he needs to eat more M&Ms and less snickers. e. As pointed out in the class introduction obesity is a major issue caused by the trend towards processed food and John should eat less of both.

9 9 37. As discussed in class, labor used in agriculture has been declining since the 1950 s. With relatively constant levels of capital and other inputs, what could describe the general trend of increasing agricultural output observed over the same time period? a. More export markets have allowed farmers to grow more b. Better technology has led to yield increases per acre c. Greater domestic demand for food products d. Government programs aiming at increasing access to food for the urban and rural poor (i.e. Food Stamps) e. None of the above 38. Two conditions for profit maximization discussed in class are MC = MR and MVP = MIC. Which of the following statements is incorrect? a. MC = MR gives the profit maximizing point from the output side, whereas, MVP = MIC given the profit maximizing point from the input side. b. At input levels less than the profit maximizing level, the value of an additional input is greater than its cost. c. At input levels greater than the profit maximizing level, the value of an additional input is less than its cost. d. The two conditions differ; therefore, one would expect them to provide different inferences for the decision maker. e. At output levels greater than the profit maximizing level, the value of an additional output is less than its cost. 39. The United States Department of Agriculture recently released data on Nebraska wheat prices. The prices have fallen drastically from last year. Warren is lobbying Congress to increase subsidies (payments to farmers). His argument is that farmer welfare should be a priority in economic downtimes. What branch of economics is this? a. Positive b. Normative c. Prescriptive d. Predictive e. None of the above 40. If the price of all goods increase by the same proportion as income, then the quantity of good x demanded will a. decrease. b. increase. c. change by the same proportion. d. not change. e. need to know the preferences of the individual.

10 Given the quality of TAMU s basketball teams, you are making plans to attend the NCAA tournaments. You currently have $500 to spend on tickets which cost $100/ game for the women s tournament and $200/ game for the men s tournament. On the following graph what is the approximate number of games you can attend? A D C E B a. Three women s and one men s games. b. Three men s and one women s games. c. Six women s games and two men s games. d. Twelve women s and two men s games. e. Five women s and six men s games.

11 11 There are 41 questions, only 40 will be graded. Please pick the one question you do not want graded by placing XXX in the answer line. If you do not pick a question to not be graded, question 41 will not be graded. Test Version 1 Name Question Answer Question Answer Grade