Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1

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1 1 Introduction to Agricultural Economics Agricultural Economics 105 Spring 2015 First Hour Exam Version 1 Name Section 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. Agricultural economics is an applied social science that deals with a. how producers use scarce resources. b. how consumers and society use scarce resources. c. the production, processing, and marketing of food and fiber products. d. the consumption of food and fiber products and natural resources. e. all of the above. 2. Trends seen in agriculture include all of the following except? a. Decreasing percentage of food expenditures spent on food at home. b. Increasing percentage of food expenditures spent on food away from home. c. Increase in obesity among U.S. adults. d. Increasing amount of food expenditures attributed to food produced at home. e. Increasing percent of food expenditures spent on food services. 3. The is the portion of the food expenditures associated with activities beyond the farm gate. a. Marketing Bill b. Food Bill c. Farm Program d. Value added component associated with raising crops e. Farm Value 4. Perfect competition applies when four of the following conditions are met. Which condition is not required? a. There must be many buyers. b. There must be many sellers. c. The buyers and sellers must trade an identical item. d. Buyers and sellers have perfect knowledge. e. The item traded must be a physical product, such as corn and not a nonphysical (service) item, such as haircuts.

2 2 5. A student club wants to raise its income to cover its costs. The club s income comes from membership fees and from selling tickets to its football tailgates. Attendance at the tailgates currently leads to overcrowding of the space allowed. The demand for membership is price inelastic and the demand for tailgates is price elastic. To reduce the crowding at the tailgates without changing its total income, what should the club do? a. Raise both tailgate ticket price and the membership fee. b. Lower both the tailgate ticket price and the membership fee c. Raise the tailgate ticket price but lower the membership fee. d. Lower the tailgate ticket price but raise the membership fee. e. Not enough information is given. 6. effect of a price change is the change in quantity attributed solely to the change in the price ratio between two goods. a. Income b. Marginal rate of substitution c. Law of demand d. Substitution e. Indifference curve 7. The price of a product increases from 12 pesos to 20 pesos and the quantity demanded falls from 55 a week to 45 a week, what is the own-price elasticity of demand? a. 0.4 b c d e Given the demand curve, correctly label the segments given by the blank lines from the top to the bottom blank. a. inelastic, elastic, unitary b. elastic, inelastic, unitary c. inelastic, unitary, elastic d. unitary, inelastic, elastic e. elastic, unitary, inelastic

3 3 9. Which of the following statements about the market demand curve for a product is false? a. The market demand curve represents the sum of individual demand curves for all consumers. b. The market demand curve may shift if there is a change in the taste and preferences of some households which consume the product. c. The market demand curve may shift if there is change in the price of the product. d. The market demand curve may shift if there is a change in the number of consumers who buy the product. e. The market demand curve may shift if consumers income increases. 10. If we compare the changes in total variable costs (TVC) and total costs (TC) as an additional unit of output is produced a. TVC changes less than TC. b. TVC changes more than TC. c. The changes in TVC and TC are equal. d. The changes in TVC and TC equals the change in fixed costs. e. None of the above. 11. Kroger is having a sale on pork tenderloin. As a result, you decide to buy fewer chickens this week. Assuming that pork and chickens are normal goods, which of the following best describes the situation? a. For the consumption of pork, the substitution effect is positive and the income effect is negative. b. For the consumption of pork, the substitution effect is negative and the income effect is positive. c. For the consumption of chickens, the substitution effect is positive and the income effect is negative. d. For the consumption of chickens, the substitution effect is negative and the income effect is positive. e. The effects are indeterminate. 12. Given the situation in question 11, we can conclude. a. the goods are independent cross price elasticity is zero. b. the cross price elasticity is negative the goods are complements. c. the cross price elasticity is positive the goods are complements. d. the cross price elasticity is positive the goods are substitutes. e. the cross price elasticity is positive the goods are substitutes.

4 4 Questions use the same graph. 13. A producer lowers the price of a good from A to B. Which area represents the loss in revenue from the price decrease? a. CDFG b. EFG c. AEGB d. AJE e. AEFB 14. Why do producer experience the loss in question 13? a. They sell fewer goods at the new price. b. They sell more goods at the new price. c. For the amount of goods sold before the price change, the price now is now lower. d. The sell more goods represented by C-D at a lower price. e. Need to know the income and substitution effects, along with the change in price. 15. Which area represents total consumer surplus associated with the new price? Is there a gain or a loss of consumer surplus associated with the price change? a. CDFG - loss b. AEFB - gain c. EFG - loss d. BFJ - gain e. AEBG - gain 16. The own price elasticity for Starbucks coffee has been estimated to be -5, whereas the own price elasticity for coffee has been estimated to be How can this be? a. These two elasticities estimates are for two different products so they are not comparable. b. The demand for Starbuck s coffee is inelastic, but demand for coffee is elastic reflecting people s taste and preferences. c. Starbuck s is a specific product but coffee is many products, therefore, more alternatives causing coffee to be more elastic. d. Starbuck s coffee appears to be a normal luxury good, whereas coffee is a normal necessity good. e. If the price of Starbuck s coffee increases, you may switch to another coffee brand, making Starbuck s more elastic relative to coffee in general.

5 5 17. refer to the implicit costs associated with the next best alternative. a. Fixed costs b. Opportunity costs c. Variable costs d. Alternative costs e. Average total costs 18. Stage III of production begins where a. MPP is equal to zero. b. TPP is maximized. c. MPP is maximized. d. APP equals TPP. e. APP equals MPP. 19. At his current consumption level, Robin s marginal utility for consuming yogurt is 1 util, and the price is $0.5. The marginal utility for consuming a meal at a restaurant is 20 utils units and the price is $10. Which of the following best describes Robin s situation? a. Robin is maximizing her utility at this point. b. Robin is not maximizing her utility; she needs to eat more yogurt and less meals at a restaurant. c. Robin is not maximizing her utility; she needs to eat more meals in a restaurant and less yogurt. d. Robin needs to eat more yogurt because it is the cheaper good, and economic theory states we always consume more of the cheaper good. e. We need to know the budget constraint and indifference curves to answer this question. 20. The main difference between "the short run" and "the long run" is a. the law of diminishing returns applies in the short run, but not in the long run. b. in the short run all resources are fixed, while in the long run all resources are variable. c. fixed costs are more important to decision making in the long run than they are in the short run. d. short run is usually less than a year while the long run is more than a year. e. in the long run all resources are variable, in the short run at least one resource is fixed. 21. Which law suggests that as you watch more TV per day, your marginal utility decreases? a. Law of indifference curves. b. Law of rational consumers more is preferred to less. c. Law of diminishing marginal utility. d. Law of demand. e. Law of diminishing marginal returns.

6 6 22. Given the following indifference curves, which point(s) provide the lowest level of utility? a. A. b. E and B. c. C. d. A and E. e. B and D. 23. Which of the following factors do not affect the slope and position of a consumer's budget line between two products, X and Y? a. The ratio of the price of X to the price of Y. b. The price of X. c. The price of Y. d. The consumer's income. e. Point of tangency between the budget line and indifference curve. 24. The demand curve shows a. how consumers adjust the quantity of a product they are willing to buy in response to a change of income. b. a negative relationship between price and quantity. c. how much of a commodity, consumers will buy given a limited income. d. both b and c but not a. e. a, b, and c. 25. In the short-run, which of the following costs always decrease as output increases? a. Average variable cost. b. Average fixed cost. c. Short-run average cost. d. Short-run marginal cost. e. Total costs. 26. If the own-price elasticity of supply is less than 1.0 then a. the percent change in quantity supplied is greater than the percent change in price. b. the percent change in quantity supplied is less than the percent change in price. c. the percent change in quantity supplied is equal to the percent change in price. d. there is a vertical supply curve. e. there is a horizontal supply curve.

7 Hiking days When examining the long run cost curve, if the increase in output associate with increasing input usage is more than the proportional increase in input use, then we have. a. decreasing returns to size. b. constant returns to size. c. increasing returns to size. d. decreasing marginal product. e. law of supply. 28. A change in quantity demanded is caused by a. changes in the consumers tastes and preferences. b. changes in population. c. changes in income. d. changes in price. e. a, b, and c. 29. On the following graph what is the correct consumer equilibrium point if the consumer s budget is $200 and the price of fishing days is $20 and hiking days is $10 in Costa Rica A 15 D 10 5 C E B 0 a. A b. B c. C d. D e. E Fishing days

8 8 30. The reason the marginal cost curve eventually increases as output increases is because a. of diseconomies of scale. b. of inefficiencies in management discussed during the class introduction. c. of the law of diminishing marginal product. d. of the law of demand which indicates price must decrease to sell more (increase in quantity demanded) e. of the law of diminishing marginal utility. 31. Given the graph to the right, correctly label the curves 1, 2, and 3? a. TPP, APP, MPP b. TPP, MPP, APP c. APP, TPP, MPP d. TC, TVC, MC e. VC, TC, VC A firm s supply curve is given by. a. 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. 33. The law of demand states a. when the price of a commodity rises and nothing else changes, the quantity consumed declines. b. when the price of a commodity rises and nothing else changes, the quantity consumed increases. c. when the quantity demanded of a good increases and nothing else changes, the price will fall. d. when consumers demand more of a good and nothing else changes, producers will provide more. e. a, c, and d.

9 9 Questions use the following graph. 34. At a market price of $5, the profit maximizing level of output is? a. 25 b. 75 c. 200 d. 275 e. somewhere between 200 and 275 as that is stage II of production. 35. Total costs at the profit maximizing level of output are? a. area 6, H, 100, 0 b. area 6, F, 75, 0 c. area 4, A, 50, 0 d. area 5, B 75, 0 e. area 5, F, 100, 0

10 Total revenues at the profit maximizing level of output are? a. area 6, H, 100, 0 b. area 6, C, 75, 0 c. area 4, A, 50, 0 d. area 5, B, 75, 0 e. area 5, F, 100, Profits at the profit maximizing level of output are? a. positive b. negative c. indeterminate cannot tell with information given. d. MR = MC e. area 0, 75, F, The profit maximizing level of input is given by. a. maximizing the marginal value product. b. minimizing marginal input costs. c. marginal value product equals marginal costs. d. point of tangency of marginal value product and marginal input costs. e. marginal value product equals marginal input cost. 39. Which of the following statements about a firm's average cost curves is false? a. the short run average cost curve will not change if the price of an input that is fixed in the short run increases. b. the short run average cost curve will shift upwards if the price of an input that is variable in the short run increases. c. short run average cost curves will generally lie above long run average cost curves. d. short run average cost curves are based on the cost of inputs and the total physical product curve (TPP). e. all are false. 40. A consumer plots an indifference map between two products A and B, and marks the points which show the combinations of A and B that the consumer would buy if the price of A increased but the price of B remained the same. The consumer then plots a line through these points. This curve is known as. a. the budget line. b. a demand curve. c. the price consumption curve. d. an indifference curve. e. the diminishing marginal returns curve.

11 Suppose a consumer faces a rise in the price of product A while the consumer's income remains unchanged. Which of the following statements about the income effect is false? a. There is no income effect because the consumer's income is unchanged. b. Between them the income and substitution effects cover the entire change in the quantity that the consumer demands. c. If the product is normal, the income effect works in the same direction as the substitution effect. d. If the product is inferior, the income effect works in the opposite direction to the substitution effect. e. the overall effect is the sum of the substitution and income effects.

12 12 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