1 Name Introduction to Agricultural Economics Agricultural Economics 105 Spring 2017 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. Which of the following will lead to an increase in the quantity demanded for LG cell phones? a. The price of Apple cell phones decreases. b. The retailers of LG cell phones discount price. c. The producers of components for LG cell phones raise prices. d. The price of Apps for cell phones decreases. e. National income increases. 2. Firms experience diminishing marginal physical product (MPP). Diminishing MPP causes the a. demand curve the firm faces to be horizontal. b. demand curve the firm faces to be downward sloping. c. firm s supply curve to be horizontal. d. firm s supply curve to be upward sloping. e. firm s supply curve to be downward sloping. 3. When there is a price change, consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price, this is known as a. the Law of Diminishing Marginal Utility. b. consumer equilibrium point. c. indifference curves. d. income effect. e. substitution effect. 4. Given current U.S. policies, market analysts are predicting world oil supplies will decrease in 2017. This announcement of decreasing oil supplies should a. shift the supply curve of gasoline upward, decrease supply of gasoline. b. shift the supply curve of gasoline downward, increase supply of gasoline. c. shift the demand curve for gasoline to the right as the price of gasoline will increase. d. shift the demand curve for gasoline to the left as the price of gasoline will decrease. e. have no effect of the market equilibrium point as both demand and supply will shift.
2 5. The different combinations of goods a consumer can afford with a given amount of money, at set prices is known as a. marginal utility. b. iso-revenue line. c. budget constraint. d. consumer equilibrium point. e. iso-cost line. 6. 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. Refer to the following table for questions 7 9. 7. What is the MPP for the 80 pounds of fertilizer? a. 9 b. 8 c. 7 d. 6 e. 5 8. Stage III of production occurs between what two levels of applied fertilizer? a. 40-60 b. 60-80 c. 80-100 d. 100-120 e. 120-140 f. 140-160 Joe's Corn Production in bushels / acre Fertilizer pounds / acre TPP MPP APP 20 360 18 18 40 640 14 16 60 840 10 14 80 960 12 100 1000 2 10 120 960-2 8 140 840-6 6 160 640-10 4 9. As shown MPP is decreasing along with APP. It appears APP will become negative a. in Stage I. b. at some fertilizer level greater than 160. c. when we reach the production maximization. d. never, APP is always positive. e. in Stage III
3 10. Assume you have $36 to spend at the Texas Aggie Football game between your date and yourself. You can buy either nachos at $12 per plate or Pepsi at $6 per drink. Assume Pepsi is the y axis and nachos are on the x axis. Relative price ratio as defined in class is a. equal the slope of the budget constraint. b. the price of nachos divided by the price of Pepsi. c. equal to the slope of the indifference curve at the consumer equilibrium. d. equal to the marginal utility of nachos divided by the marginal utility of Pepsi. e. All are correct. 11. The effect of a price increase is the buying power of income has been reduced, even though actual income has not changed. This is known as a. the Law of Diminishing Marginal Utility. b. consumer equilibrium point. c. indifference curves. d. income effect. e. substitution effect. 12. President Trump wants to overturn Obama Care. President Trump s plan will decrease the price of health care in the U.S. while at the same time increasing revenues to doctors. This can occur if (assuming a competitive market) a. the cross price elasticity of health care demand is elastic. b. the own price elasticity of health care demand is elastic. c. the income elasticity of health care demand is unitary. d. the own price elasticity of health care demand is inelastic. e. own price elasticity of health care is unitary. Use the following information for questions 13-15. The following are estimated elasticities for 4.0 and Go s classes income elasticity = 6, own price elasticity = -10, cross price elasticity = 1.5 associated with the price of classes at Texas A&M. 13. If Texas A&M students incomes have decreased by 5% how does the number of students using 4.0 and Go review classes change a. decreases by 5%. b. decreases by 30%. c. increase by 6%. d. increases by 75%. e. decreases by 50%.
4 14. If Texas A&M increases the price of its classes by 10%, how would this affect 4.0 and Go student number a. increase by 15%. b. decrease by 15%. c. increase by 10%. d. increase by 1.5%. e. decrease by 60%. 15. What type of good is 4.0 and Go relative to TAMU classes? a. Complement. b. Substitute. c. Independent. d. 4.0 and Go is not part of TAMU. e. Cannot be determined. 16. The marketing bill in the U.S. has been a. decreasing because the U.S. is the world leader in cheap food. b. decreasing in recent years because of concerns about obesity rates, fast food, and biofuels. c. increasing in the U.S. because of the trend toward healthier foods and the influx of expensive foreign food imports. d. increasing in the U.S. because of the trend toward more processed foods. e. has remained steady in the U.S. because of continued technology improvements in U.S. known as the green revolution. 17. If the income elasticity of demand for a good is -0.5, then the good is a. a normal good. b. a normal and a luxury good. c. an normal and a necessity good. d. inferior good. e. an independent good. 18. Short run is best characterized by a. one input as illustrated in the class notes. b. a year, as that is the period for filing taxes. c. MPP and APP curves. d. both a and b are correct. e. having at least one input fixed.
5 19. The marginal utility to price ratio for raincoats is 1.8, whereas, the marginal utility to price for umbrellas is 1.2. As a rational consumer you should a. shift consumption from raincoats to umbrellas as umbrellas cost more than raincoats. b. shift consumption from raincoats to umbrellas as umbrellas cost less than raincoat. c. shift consumption from umbrellas to raincoats as the utility from the last dollar spent is higher for raincoats. d. shift consumption from raincoats to umbrellas as the utility from the last dollar spent is higher for raincoats. e. shift consumption from raincoats to umbrellas as the utility from the last dollar spent is higher for umbrellas. 20. The profit maximizing point for a producer is a. where the marginal utility for input A divided by the price of input A equals the marginal utility of input B divided by the price of good B, that is. b. where marginal revenue equals marginal cost, MR = MC. c. where the indifference curves intersect the budget constraint. d. where total costs are minimized. e. where total revenues are maximized. 21. When we refer to indifference curves as, we mean that. a. downward sloping; if you consume more of one good you must consume less of the other to keep utility constant. b. everywhere dense; there is only one indifference curve that matters. c. non-intersecting; indifference curves only cross when their marginal rates of substitution are equal to the price ratio. d. convex to the origin; we prefer less to more. e. upward sloping; a person s utility is positive. 22. Suppose your friends take you out for dinner on your birthday and you have a much better time than you would have had doing anything else. There is still an opportunity cost, even though they will not let you pay for anything. a. True b. False 23. The marginal rate of substitution describes a. the rate at which a consumer is willing to trade consumption of one good for another good while keeping utility constant. b. the rate at which the production function changes when the last unit of input is added to the production process. c. the slope of a consumer s indifference curves over a given region. d. a and b e. a and c
6 24. Which of the following statements best illustrates the concept of consumer surplus associated with ground beef? a. The government steps into the market and lowers the market price by $0.50 / pound. b. Recent government statistics show people who eat ground beef may have a shorter life because of certain oxidants caused by frying ground beef. c. The market for ground beef is such that the quantity demanded equals quantity supplied. d. You enter HEB with $4.50 to purchase pound of ground beef, but because of the special today you have to only pay $4. e. An importer of ground beef is not willing to $4.50 / pound for ground beef but is willing to pay $4.10 per pound. 25. Perfect competition applies when four of the following conditions are met. Which condition is not required? a. There must be only one buyer. b. There must be many sellers. c. The buyers and sellers must trade an identical (homogenous) item. d. Buyers and sellers have perfect knowledge. e. There must many buyers. 26. A firm s supply curve is given by. a. the breakeven price. b. the area between shutdown and breakeven price. c. the firm s average variable costs. d. its marginal cost curve above average variable costs. e. its marginal cost curve above average total costs. 27. Texas A&M board of regents approved a $200 / credit increase in tuition for new nonresident undergraduate students. They stated all 1,000 new undergraduate students accepted for the 2017 fall semester before the tuition increase was announced will come to TAMU. The increase will generate 1,000 x 200 x 15 credits = 3 million dollars for the university. The board is assuming the demand curve for TAMU nonresident students has an own-price elasticity of a. perfectly inelastic. b. perfectly elastic. c. inelastic but not perfectly inelastic. d. elastic but not perfectly elastic. e. unitary.
7 28. Which of the following would cause the demand curve for automobiles to shift to the left? a. an increase in the price of automobiles. b. an increase in the interest rate paid to borrow money to pay for automobiles. c. an increase in buyers' incomes. d. an decrease in the cost of production of automobiles. e. a long term decrease in the price of gasoline. 29. After graduating from high school, Steve had three choices, listed in order of preference: (1) attend TAMU, (2) work in a GPS unit factory, or (3) attend the college at Austin. His opportunity cost of going to TAMU includes which of the following? a. The cost of books and supplies at Austin. b. The income he could have earned at the GPS factory, plus the direct cost of attending TAMU (tuition, textbooks, etc.). c. The benefits he could have received from going to that Austin college. d. Only the tuition and fees paid for taking classes at TAMU. e. More information is necessary. 30. Because of the scarcity of resources, a. the government must decide how to allocate available resources. b. some members of each society must live in poverty. c. people must choose among competing uses of available resources. d. resource availability exceeds the possible uses for available resources. e. all members of society benefit as too much of a good thing is bad. For questions 31 33 refer to the following figure. The market price is $4 / unit. 31. Total revenue at the profit maximizing level of output is a. area 8, D, 200, 0 b. area 4, K, 200, 0 c. area 5, A, K, 4 d. area 4, B, 75, 0 e. area 0, 10, E, 275 32. Total costs at the profit maximizing level of output is a. area 5, F, 75, 0 b. area 4, B, P, 3 c. area 4, K, 200, 0 d. area 5, F, P, 2 e. area 0, 5, A, 200
8 33. Profits at the profit maximizing level of output are a. positive b. negative c. area 2, P, 75, 0 d. area 4, B, F, 5 e. b and d f. a and d g. c and d Use the following graph to answer questions 34-36. For the AGEC 105 After Test Party, you can either buy either steaks at $8 / pound or liquid beverages at $6 / six pack. 34. Which point is the correct consumer equilibrium point if your budget is $48? a. A b. C c. D d. D e. F 35. What changed in going from budget constraint 1 to constraint 2? a. Price of beverages increased. b. Your budget decreased. c. Price of steaks increased. d. Price of beverages decreased. e. Price of steaks decreased.
9 36. Which point has the largest utility? a. C b. D c. A d. E e. B 37. If income and the prices of all goods increase by the same proportion, then the quantity of good x demanded will not change. Why? a. Price ratios have not change. b. Price ratios have not changed and the budget constraint has not changed. c. Preferences of the individual are such they are unitary. d. Indifference curves and budget constraint have increased proportionately. e. Statement is not true. 38. Aggregate demand is the summation of all relevant individual consumers demand. To be relevant a consumer must have both willingness to buy and ability to buy. These conditions are given by a. price ratios. b. isoquants and isocost curves. c. TPP, MPP, and APP d. indifference curves and budget line. e. the law of demand. 39. What is the own price elasticity of supply for Blue Baker BLT sandwiches given the following supply curve? a. -0.8 b. 0.8 c. 1.0 d. 0.4 e. 1.25
10 40. Are cars during rush hour scare in Houston? a. Yes, cars are economically scarce. b. No, cars are not economically scarce. c. Yes, cars are physically scarce. d. No, cars are not both physically and economically scarce. e. Yes, cars are both economically and physically scarce. 41. Calculate Total Average Costs for the missing value in the following table. To get credit, you must place this value on the answer page. TPP Fixed Costs Total Costs Average Total Costs 840 500 1100 1.31 960 500 1300 1.35 1000 500 1500 960 500 1700 1.77 840 500 1900 2.26 640 500 2100 3.28
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 1 22 2 23 3 24 4 25 5 26 6 27 7 28 8 29 9 30 10 31 11 32 12 33 13 34 14 35 15 36 16 37 17 38 18 39 19 40 20 41 21 Grade