Name Section (1 point) Introduction to Agricultural Economics Agricultural Economics 105 Spring 2011 Second Hour Exam Version 1 For the multiple choice questions, circle the most correct answer, there is only ONE correct answer per multiple choice question. Each question is worth 3 points unless otherwise noted. For the other questions either correctly draw on the graphs provided or provide the answer on the space provided. Show your work. 1. What is the term that represents the maximum willingness-to-pay or the point where the demand curve intersects the y-axis? a. halt b. efficient c. maximum d. gag e. choke 2. Which of the following forms of market competition incur social costs? a. monopoly b. perfect competition c. monopolistic competition d. oligopoly e. all except b 3. All of the following are characteristics of monopoly except a. no entry of new firms b. small number of sellers c. a unique product d. ability to control its prices e. operates where marginal costs equals marginal revenue
4. Forms of government intervention in market place take on many forms. One such form is a price ceiling. Which of the following is true about price ceilings? a. To be binding a price ceiling must be above the market equilibrium b. To be binding a price ceiling must be below the market equilibrium c. Price ceilings have not been used in the U.S. market place because of their unpopularity by consumers d. Imposition of price ceilings leads to commodity surplus in the market e. Price ceilings are often used to correct market failures 5. Through predator control most if not all wolves were eradicated from Yellowstone Park by the 1940 s. In 1995, wolves where reintroduced into the Park. Currently, approximately 1700 wolves live in the greater Yellowstone area. Many ranchers are now stating wolves are killing their livestock but they are not being compensated for their losses. This is a (an) example of : a. conflict caused by low returns to ranching b. well defined property rights c. public goods vs. public goods d. unsuccessful actions by humans to control the environment e. externality 6. Between 1992 and 2001, Bexar County lost 62,067 acres of farm and ranch land to urbanization. Across the U.S., anxiety is growing concerning the loss of rural lands because a. loss of rural lands tends to be permanent b. the location of the loss land tends to be ecologically sensitive areas c. the rate of the loss of land is high as illustrated by Bexar County d. all of the above a-c e. none of the above 7. The optimal level of pollution is a. zero as pollution is a negative externality which should be avoided b. greater than zero as humans will always pollute c. is at the point where the marginal cost of damages equals the marginal cost of control d. is higher for pollutants such as lead than it is for pollutants such as C0 2 because lead is a more harmful pollutant e. based on property rights being well define such that a market failure occurs
8. The prisoner s dilemma and oligopoly are related in that in both cases the following hold a. both illustrate it is difficult to collaborate but can be rewarding if two parties collude b. the best outcome for the prisoner dilemma and an oligopoly is to not cooperate c. the reason two firms do not cooperate is because the firm that does not cooperate has a competitive advantage over the other firm d. illustrates only one outcome is possible in an oligopoly e. it is a stretch to compare prisoners and firms in a market place 9. In perfect competition, a profit maximizing firm would produce at the point marginal revenue equals marginal costs. Monopolies have market power; as such a profit maximizing monopolist should produce at the point. a. average revenue equals marginal costs b. marginal revenue equals average costs c. average costs equals average revenue d. at the point that they can maximize price to the consumer e. marginal revenue equals marginal costs 10. Assume that firms in an oligopoly are currently colluding to set price and output to maximize total industry profit. If the oligopolists are forced to stop colluding, the price charged by the oligopolists will and the total output produced will. a. decrease, decrease b. increase, decrease c. decrease, increase d. increase, increase e. indeterminate with the information given 11. Monopolistic competition differs from perfect competition primarily because: a. in monopolistic competition, firms can differentiate their products b. in monopolistic competition, there are relatively few barriers to entry. c. in monopolistic competition, entry into the industry is blocked. d. in perfect competition, firms can differentiate their products. e. the two are basically the same forms of market structures 12. A firm in a perfectly competitive industry: a. sells a fixed amount of output regardless of price b. sells at the market-determined price only when other firms sell at a higher price c. must lower price to sell more output d. must raise price to sell more output e. sells at the market-determined price regardless of output
13. A firm in a monopolistically competitive industry: a. sells a fixed amount of output regardless of price b. can sell an infinite amount of output at the market-determined price c. must lower price to sell more output d. must raise price to sell more output e. sells at a fixed price regardless of output 14. Scenic vistas in national parks such as Yosemite National Park are often used as examples of public goods, a. because they are provided to the viewing public by the federal government b. because the scenic view is non-rival in comparison to other parks c. because scenic views are part of our heritage and should be preserved d. because they are non-rival / non-excludable in consumption e. because of a market failure 15. Ecosystem goods are the benefits we as society obtain from agricultural and other lands such as providing recreation and regulatory functions. These goods are underprovided in the market place because a. people are not willing to purchase these goods b. free rider problem associated with private goods c. they are goods deemed as necessities and are provided to maintain life d. free rider problem associated with public goods e. both b and c 16. Deadweight loss is an economic tool used to measure a. how much smaller the economic pie is after government interference in the market b. how much inefficiency is caused by government interference in the market c. how much worse off society is after government interference in the market d. all of the above e. none of the above 17. If demand for a product is perfectly price elastic (hint what does demand curve look like), then with a market at equilibrium the following will hold a. producer surplus will be zero b. consumer surplus will be more than producer surplus c. producer surplus will equal consumer surplus d. consumer surplus will be zero e. total surplus will be zero
Refer to the following figure for questions 18-21. P S a b e h c f i d j g D Price Floor Q 18. To encourage natural gas production, the federal government is considering placing a price floor on natural gas prices. If the government imposed a price floor as illustrated in the figure, we would predict a. quantity supplied would exceed quantity demanded and a shortage would exist b. quantity supplied would exceed quantity demanded and a surplus would exist c. quantity demanded would exceed quantity supplied and a shortage would exist d. quantity demanded would exceed quantity supplied and a surplus would exist e. no change in quantity supplied or quantity demanded because this is not a biding price floor 19. If the government imposed a price floor as illustrated in the figure, we would predict a deadweight loss to society in the amount of a. area d b. area e c. area c d. area g + d e. area c + f 20. Which area measures the loss in consumer surplus as a result of the imposition of the price floor compared to perfect competition? a. area b +c b. area a c. area b + c + d d. area d- c e. area a+ b + c
21. Which area measures the total surplus that exists after the imposition of the price floor compared to perfect competition? a. area a+ b + c + e + f + g + h + i +j b. area b + c +e + f c. area a+ b + c + e + f + h + i d. area b+ c + d - a e. area a+ b + e Refer to the following production possibility figure for question 22. 2x6 lumber E A D 2x4 lumber 22. A lumberyard that is producing at output A a. can produce more 2x4 and 2x6 lumber without additional resources b. can produce more 2x4 but not more 2x6 lumber without additional resources c. can produce more 2x6 but not more 2x4 lumber without additional resources d. can produce output D without more resources e. I should have watched the lumberyard extra credit video
23. A lumberyard is producing at output E with a negative price ratio of -1, that is the price of 2x4 ( ) = -1. If the price of 2x6 doubles, what would you suggest? price of 2x6 a. produce only 2x6 lumber as the relative price is higher b. produce only 2x4 lumber as you can produce more 2x4 lumber c. the isorevenue line becomes more vertical and you should produce more 2x4 and less 2x6 lumber d. the isorevenue line becomes more horizontal and you should produce less 2x4 and more 2x6 lumber e. the isorevenue line becomes more vertical and you should produce less 2x4 and more 2x6 lumber 24. The rate at which the business is willing to substitute between two products in the current period is known as: a. production possibilities curve (PPC) b. marginal rate of product transformation (MRPT) c. iso revenue line d. isoquant e. marginal rate of substitution in consumption 25. The difference between a pure public good and a pure private good is a public good is and whereas a private good is and in consumption a. non-excludable and non-rivalrous: excludable and rivalrous b. non-rivalrous and elastic; non-rivalrous and inelastic c. not associated with consumer and producer surplus; associated with producer and consumer surplus d. excludable and rivalrous; non-excludable and non-rivalrous e. inferior and elastic; normal and luxury 26. According to the Coase Theorem, if there is perfect information and no transaction costs: a. there will be large externalities b. public goods should be provided by the government c. governments will be required to regulate more. d. the initial allocation of property rights significantly affects the allocation of resources e. any distribution of well defined property rights will result in the same allocation of resources
For question 27, refer to the following isoquant graph associated with the production of fans used on agricultural tractors and isocost line (dashed line). Fan Housing 10 9 8 7 6 5 4 3 2 1 0 0 1 2 3 4 5 6 7 8 9 10 11 12 Fan Blades 27. Notice for any isocost line other than a horizontal or vertical isocost line, the isocost and isoquant will be tangent at angle formed by the isoquant. Why? a. housing and blades are perfect substitutes in production b. housing and blades are perfect compliments in production c. 4 blades and 1 housing unit go together to create one fan d. a and c e. b and c
Answer questions 28-29 based on the following figure. Isoquants represent output levels of 500, 1000 crates of blueberries per day, whereas, the isocost curves represent costs of $200, $300, and $400 per day. Acres 50 30 10 30 50 70 Laborers 28. Clearly and correctly label the two isoquants and the three isocost curves in the figure. 29. If the firm has $400 to spend a. What is the profit maximizing level of acres harvested per day b. What is the profit maximizing level of laborers per day c. The profit maximizing level of output per day is 30. Ocean fish are an example of an open access resource. The oceans are overfished because if fisherman A leaves fish in the ocean for breeding stock fisherman B will harvest the fish left for breeding stock. This is an example of which characteristic of well defined property rights being violated. a. Exclusivity b. Enforceability c. Specificity d. Transferability e. All characteristics are well defined as ocean fish are caught and sold every day
31. OPEC is often cited as being a monopoly. Assuming this is true, which of the following statement is true? a. OPEC is an environmentalist best friend because OPEC has raised oil prices therefore less oil is used than under perfect competition b. OPEC exists because humans worldwide need oil and OPEC oil is unique c. OPEC operates where MC is equal to AC d. OPEC has been bad for the world s environment / economies by virtual of its behavior to increase oil prices beyond those people are willing to pay e. OPEC operates like other firms in operating where demand insects supply 32. Suppose a firm can sell 9 units at a price of $10 per unit and 12 units at a price of $9 per unit. What would marginal revenue equal between these levels of output sold a. $2 b. $10 c. $8 d. $6 e. $3 33. As a policy market, you are deciding to tax an industry. Which of the following statements is most correct? a. per unit tax does not affect the market clearing price and quantity b. a lump sum tax does not affect the market clearing price and quantity c. taxes are not good for the economy or the environment d. per unit tax will increase the equilibrium quantity e. a lump sum tax will decrease the equilibrium quantity 2 POINTS EXTRA CREDIT On the following graph, correctly draw in the aggregate demand curve for both private and public goods assuming two consumers A and B. Price Private Good Price Public Good S S A B A B Quantity Quantity