Introduction to Agricultural Economics Agricultural Economics 105 Spring 2018 First Hour Exam Version 1

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1 1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2018 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. Scarcity in economics is a. when a resource is of limited availability and is of productive use. b. the condition or quality of being scarce meaning inadequate supply. c. associated with natural and biological resources but not manufactured resources as humans can manufacture more capital. d. when humans have unlimited wants. e. a through d. 2. U.S. trends in agricultural discussed in class include all of the following except a. increasing food expenditures away from home. b. increasing obesity rates. c. increasing marketing bill. d. increasing number of farms to feed the increasing world population. e. increasing productivity. f. all of the above. 3. Value of a good depends on a. the MC curve (cost of producing the good) above the breakeven price. b. the AVC curve above the shutdown price. c. the part of the MC curve that is upward sloping. d. the utility the good provides. e. the consumer equilibrium taking into account the budget constraint and indifference curve. 4. On a recent edition of CBS This Morning their stock analyst made the following comment concerning Apple Inc. revenues. Increased prices made up for lackluster sales resulting in increased revenues for Apple Inc. This statement is true only if the own-price elasticity of Apple s products is a. normal b. inferior c. elastic d. unitary e. inelastic

2 2 5. When considering the consumer equilibrium, among all the possible combination of goods the combination that maximizes utility subject to a budget constraint is the one that a. maximizes the marginal utility per dollar of each good. b. the marginal utilities per dollar spent of each good are equal. c. maximizes the marginal utilities per pound (or other physical unit) of each good. d. the marginal utilities per pound (or other physical unit) of each good are equal. e. the total utility per dollar spent are equal among all goods purchased. 6. If the consumer s marginal rate of substitution equals two hats for one pair of gloves, a. the consumer s indifference curve must be positively sloped. b. the consumer is willing to trade off two pair of gloves for one hat to maintain the same utility. c. the ratio of the consumer s marginal utility of one pair of gloves to one hat must equal negative one half. d. is the rate at which the consumer is willing to substitute one good for another to increase utility by two. e. the ratio of the consumer s marginal utility of two hats to one pair of gloves must equal negative two. 7. The property of indifference curves that allows one to draw the curve anywhere in the right hand quadrant is a. negatively sloped. b. non-intersecting. c. convex to the origin. d. increasing utility as one moves upward and to the right. e. everywhere dense. 8. When considering the consumer equilibrium (assume two normal goods), the difference between a price decrease for a good and an increase in income is a. a price decrease does not affect the consumption of other goods while an increase in income does. b. an increase in income does not affect the slope of the budget line while a decrease in price does change the slope. c. an increase in income affects the slope of the budget line while a decrease in price does not change the slope. d. there is basically no difference, both the price decrease and income increase will lead to a decrease in consumer utility. e. the price decrease will lead to an increase in consumer utility whereas the income increase will lead to a decrease in consumer utility.

3 3 9. If a consumer derives less utility from each additional unit consumed then a. no consumer surplus is enjoyed. b. total utility is declining. c. price must be increasing. d. the law of diminishing marginal utility applies. e. b and d. 10. On February 6, the U.S. Energy Information Administration issued a statement that gasoline prices are projected to increase by 4.5 percent by April 2019 this increase should a. decrease the demand for gasoline. b. increase the demand for gasoline. c. has no impact on consumer surplus as people will buy gas at prices near $3.00. d. increase the quantity demanded for gasoline. e. decrease the quantity demanded for gasoline. 11. On December 14, 2017 the USDA released their cotton outlook that projected global cotton production to increase by 13% in Shepard in 2006 estimated the world own-price elasticity for cotton supply to be What is the expected change in world price given this projected increase in production? a. 20% decrease in price b. 26% decrease in price. c. 13% decrease in price. d. 5% decrease in price. e. 65% decrease in price. 12. Janik runs a farm service business out of Welborn. His total revenue last year equaled $200,000. His costs associated with labor which is paid on an hourly basis totaled $50,000. Janik must pay $20,000 in land payments regardless if he operates the business or not. Janik a. incurred fixed costs of $70,000. b. incurred variable costs of $20,000. c. earned a profit of $200,000. d. earned a profit of $150,000. e. earned a profit of $130, A positive own-price elasticity of supply reflects a. increasing marginal utility. b. the law of demand. c. the law of supply. d. decreasing marginal utility. e. marginal rate of substitution.

4 4 For questions 14 and 15 use the following graph of Billy s indifference curves. 14. Which point represents Billy s smallest utility? a. A. b. B. c. C. d. D. e. E. 15. The curve with points B and C illustrates a negative marginal rate of substitution between crackers and soup because a. the curve represents the same level of utility regardless of the amount of crackers and soup consumed. b. the curve shows that if you increases the consumption of crackers and soup, utility will increase. c. the curve shows that if you increase the consumption of soup, utility will not change. d. the curve shows that if you increase the consumption of soup, you must decrease the consumption of crackers to maintain the same utility level. e. the curve shows that if you increase the consumption of soup, you must increase the consumption of crackers to maintain the same utility level. 16. Stage I of production is a. where MPP = zero. b. where MC = MR. c. where MPP is below APP. d. where MPP = APP. e. where MPP is above APP.

5 5 Consider the following graph for questions 17 and Josephine has $40 to spend on recreation. Using her A&M discount, the price of bowling is $5 per game and the price of movies is $10 per movie. Which of the following budget lines represents Josephine s situation a. A b. B c. C d. D e. E 18. Let line D represent Josephine s budget constraint, what is the slope of Josephine s budget constraint? a. Negative of the price ratio of bowling to movies. b. Negative of the price ratio of movies to bowling. c. Price ratio of bowling to movies. d. Price ratio of movies to bowling. e. Ratio of price of bowling to movies divided by Josephine s income. 19. The winter storm of January 16, 2018 caused many airlines to cancel flights. The best description of the effect of this storm in the short term (1-2 days) is a. a shift in the supply, decreasing the supply of air flights. b. a shift in the supply curve, increasing the supply of air flights. c. an increase in the quantity supplied of air flights. d. a decrease in the quantity supplied of air flights. e. no effect in the short term market equilibrium point as people just flew out the next day. 20. NBC news in May 2009 reported the sales of Spam (canned ham) increased by six percent during the 2007 recession (decrease in income). This indicates Spam is a. a necessity (food product) good. b. is a normal good. c. is a luxury good. d. is an inferior good. e. information is necessary on the percentage change in income.

6 6 21. The law of demand states a. demand increases as price decreases. b. demand depends on people having the ability (income) to buy goods. c. demand depends on people having a willingness to by the good. d. quantity demanded increases as price falls. e. both b and c. For questions refer to the following figure. Output price is $10 / unit. 22. Total revenue at the breakeven price is a. area 10, A, R, 0 b. area A, B, c. area 7, B, R, 0 d. area 6, E, N, 0 e. area 6, E, H, Total costs at the profit maximizing level of output is a. area 10, A, R, 0 b. area A, B, c. area 7, B, R, 0 d. area 6, E, N, 0 e. area 7, B, C, Fixed costs at the profit maximizing level of output are a. area 10, A, R, 0 b. area A, B, c. area 7, B, R, 0 d. area 6, E, N, 0 e. area B, C, 4, Shutdown price is a. 0.5 b. 6 c. 4 d. 3 e. 2

7 7 For questions consider the following scenario. L.L. Bean increases their price on their signature Duck Shoes from $30 to $50 and sales decrease from 150 pairs to 90 pairs per day. 26. L.L. Bean s duck shoe own-price elasticity of demand is a b c d e Woolrich sales of wool socks goes from 105 pairs to 95 pairs per week because of the above price change by L.L. Bean. What is the cross-price elasticity between wool socks and duck shoes and what does it indicate? a. Positive - complements. b. Negative- substitutes. c. Positive - substitutes. d. Negative complements. e. Zero - independent. 28. In the indifference curve / budget line diagram used to obtain the consumer s equilibrium, a consumer will move to a higher indifference curve when a. the consumer s budget increases. b. the price of either good decreases. c. the price of either good increases. d. the consumer s budget decreases. e. a and b. f. b and c. g. b and d. 29. According to Newsday, sales of private jets in the U.S. increased 15% from $18 billion to $20.9 billion between 2012 and U.S. income over the same time increased by 0.4%. This indicates private jets are a. normal and necessity goods. b. normal and luxury goods. c. only luxury goods but not normal. d. inferior goods. e. only a normal good. 30. In production stage II, MC is increasing because a. MPP = zero. b. MC = MR. c. APP in decreasing. d. MPP is decreasing. e. TPP is decreaing.

8 8 31. Which of the following costs are positive even when output is zero a. total fixed costs. b. total variable costs. c. marginal cost. d. total costs. e. a and d. The following table represents Billy s poor record keeping for his firm that fertilizes cotton acres. He pays each laborer $400 / week. Labor Acres Fertilizer (TPP) Total Variable Costs MPP Fixed Costs Total Costs Marginal Costs 32. What are Billy s total costs associated with two (2) laborers? Place your calculated value on the answer sheet. 33. What is Billy s MPP associated with two (2) laborers? Place your calculated value on the answer sheet. 34. What is Billy s MC associated with four (4) laborers? Place your calculated value on the answer sheet. For questions 35 and 36 consider the following scenario. The price of movie tickets increases. Assume going to the movies and bowling are normal goods. 35. As a result of the above change, the number of movie tickets sold decreases, which of the following best describes the situation for movie tickets? a. For the consumption of movies, the substitution effect is positive and the income effect is negative. b. For the consumption of movies, the substitution effect is negative and the income effect is positive. c. For the consumption of movies, the substitution effect is positive and the income effect is positive. d. For the consumption of movies, the substitution effect is negative and the income effect is negative. e. The effects are indeterminate.

9 9 36. As a result of the above change, the number of times one goes bowling also decreases, which of the following best describes the situation for bowling? a. For the consumption of bowling, the substitution effect is positive and the income effect is negative. b. For the consumption of bowling, the substitution effect is negative and the income effect is positive. c. For the consumption of bowling, the substitution effect is positive and the income effect is positive. d. For the consumption of bowling, the substitution effect is negative and the income effect is negative. e. The effects are indeterminate. 37. Short run is best characterized by a. less than five years as discussed in the class notes. b. a year, as that is the period for filing taxes. c. the slopes of the MPP and APP curves. d. having at least one input fixed. e. all inputs are variable. 38. Which of the following most likely decrease the demand for tickets to the next Texas A&M basketball game? a. A decrease in the price of tickets to the game. b. An increase in the price of tickets to the game. c. The basketball team s star player getting hurt. d. Kentucky coming to Reid Arena as the number one ranked team. e. A group of 5,000 students winning a $700 million lotto jackpot. 39. According to economic theory, Billy s consumer equilibrium is at a point where his budget line indifference curve. a. is a straight line parallel to the b. intersects from below the c. shows diminishing marginal utility relative to the d. is at is maximum relative to the e. is tangent to the

10 The law that states As successive units of a variable input are added to a production process with the other inputs held constant, the marginal physical product (MPP) eventually declines is known as a. the law of diminishing marginal utility. b. the law of diminishing marginal product. c. the law of diminishing marginal technical substitution. d. the law of production. e. the law of fixed inputs and costs 41. A student club s income comes from membership fees and selling tickets to its football tailgates. Attendance at the tailgates is currently leading to overcrowding. To reduce overcrowding at the tailgates without changing its total income, what should the club? Both the demand for membership and the demand for tailgates is price elastic. 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. Raise the tailgate ticket price but do nothing to the membership fee.

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