Ag marketing exam 3
2 stages of price discovery
1. discovering the equilibrium price for the market as a whole, based on demand and supply 2. adjusting that price to the transaction at hand based on quality, quantity, services added, etc.
the relationship between elasticity and slope the flatter the curve, the __ the elasticity
higher
necessities with few substitutes, like salt, have ___ demand curves
highly inelastic
a ___ demand curve is more elastic
flatter
assumptions
full info in the market both firms and consumers are rational competition exists between firms and between consumers
an industry supply curve is obtained by __all the supply curves for the individual producers in the market
horizontally summing (adding)
the ___ (or short run) is a time span such that some factors are variable and some factors are fixed
intermediate short run
comparative static analysis
involves comparing two separate market situations before and after a change in the market
demand decreases shifts demand curve ___
inward
price discovery
it involves the process of negotiation between individuals, each using available information to come as close as possible to the equilibrium price
price elasticity of supply
it is defined as the percentage change in the quantity supplied relative to the percentage change in price
the four characteristics of perfect competition are ____, _____, ____, and ____
large # of buyers and sellers, homogeneous product, freedom entry or exit and perfect knowledge and info
as firms exit an industry, supply curve shifts to the ___
left
the ___ is a time span such that no inputs are fixed, that is, all inputs are variable
long run
the relationship between elasticity and slope the steeper the curve, the ___ the elasticity
lower
market (competitive)
market is an institution or arrangements that brings buyers and sellers together
cross price elasticity of supply
measures the responsiveness of the quantity supplied of a good to changes in the price of a related good
own price elasticity of supply
measures the responsiveness of the quantity supplied of a good to changes in the price of that good
unitary demand response price decrease
no change in total revenue
market equilibrium
occurs when the quantity of a good offered by sellers at a given price equals the quantity buyers are willing and able to purchase at that same price
demand increase shifts demand curve ___
outward
technology improvements shift supply curve ___
outward (right)
change in quantity demanded
results from changes in the price of the product and are movements along a demand curve
change in quantity supplied
results from changes in the price of the product and are movements along a supply curve
a change in supply
results from changes int he quantity sold due to factors other than a change in the product price - that is if something other than the goods own price change, the position of the curve changes
as firms enter an industry, supply curve shifts to the ___
right
supply -- the ___ viewpoint
sellers
market disequilibrium
the price observed in the market is not the equilibrium price, shortages or surplus result when market is in disequilibrium, economic forces came into play to move price back toward the equilibrium
equilibrium price (Pe)
the price that clears the market, that is, where the quantity supplied exactly equals the quantity demanded
equilibrium quantity (Qe)
the quantity traded at Pe
law of one price
under competitive market conditions, all prices within a market are uniform, after taking into account the costs of adding place, time, and form utility to products within the market
consumers are ___
utility maximizers
inelastic supply
Es<1
cross price elasticity of supply formula
Es= (Q2-Q1/Q1)/(P2-P1/P1)
unitary supply
Es=1
elastic supply
Es>1
cross price elasticity of supply substitutes
Esab<0
cross price elasticity of supply independent
Esab=0
cross price elasticity of supply complements
Esab>0
subsidy is granted
supply shift right
imposing taxes (increase the cost of production
supply shifts left
price elasticity of supply formula
% change in quantity / %change in price
substitute products- Pbanana increases
demand for apple increases
complements- Ppizza increases
demand for beer decreases
complements- Ppizza decreases
demand for beer increases
inferior good- income decreases
demand increases
population increases
demand increases
complements
Edab<0 Ex. ham and eggs, lettuce and salad dressing
inelastic demand response
IEdI <1.00
unitary elastic demand response
IEdI = 1.00
elastic demand response
IEdI >1.00
price elasticity of demand and total revenue
TR= P*Q
increase in demand
a market shortage Q1-Q3<0
decrease in demand
a market surplus Q1-Q3>0
supply
a schedule of different quantities that will be offered to the marketplace at different prices it states what suppliers are willing and able to supply at a given time
market price determination
assumptions market (competitive)
demand-- the __ viewpoint
buyer's
_____ results from changes in the price of the product and are movements along a demand curve, while ____ results from changes in the quantity purchased due to factors other than a change in the product price
changes in quantity demanded, change in demand
____ analysis involves comparing two separate market situations before and after a change in the market
comparative static
inferior good- income increases
demand decreases
normal good- income decreases
demand decreases
substitute products- Pbanana decreases
demand for apple decreases
as the time period under consideration lengthens, the supply curve tends to become more ___
elastic
the ___ (means right now) is a time span so short that no resources changees can be made
immediate short run
own price elasticity of supply responsiveness can be classified as
inelastic unitary elastic Es>0
determinants of industry supply
input prices technology number of sellers other factors( including weather, institutional factors) prices of alternative products
two types of price elasticity of demand measures are !._____, measures the responsiveness of the quantity demanded of a good to changes in the price of that good; and 2. _____ measures the responsiveness of the quantity demanded of a good to changes in the price of a related good.
own price elasticity of demand; cross price elasticity of demand
two type of elasticity measures
own price elasticity of supply cross price elasticity of supply
new car market in Dallas, TX is a ___ market structure
perfect competition
economists have classified industries into four basic structures ____, ____, _____, and ____
perfect competition, monopoly, oligopoly, and monopolistic competition
firms are ___
profit maximizers
change in price elasticity depends on
slope of the demand curve price and quantity
a __ demand curve is more inelastic
steeper
demand is more elastic, the more ___ are available for the products
substitutes
input price increases
supply shifts left
good weather= supply increases
supply shifts right
which one of these would shift the farm supply curve
technology
price determination
the establishment of a market-clearing price by the intersection of supply and demand
the law of supply
the relationship that exists btw prices and quantity offered to the market the higher the price, the more will be offered to sale the lower the price, the less will be offered to sale
price elasticity is a measure of
the responsiveness of quantity demanded to changes in prices
if the calculated price elasticity of demand for cashew nuts were -0.09, then one would expect that a 10 percent decrease in the retail price of cashew nuts would result in:
a 0.9 percent increase in the quantity demanded
demand
a schedule of different quantities of a commodity that would be purchased in the marketplace at different prices
the law of demand
as long as nothing else changes, the quantity of a good purchased varies inversely with the price of that good - it states the relationship btw quantities purchases and alternatives prices -the lower the price, the more will be purchased -the higher the price, the less will be purchased
TF an industry supply curve is the horizontal summation of individual supply curves while the industry demand curve is the vertical summation of individual demand curves
false
TF because all supple curves are derived from individual firm cost structures, one could expect that all the corn farms in iowa have the same supply schedule
false
TF firms in a perfectly competitive market can change their prices to expand or reduce their sales
false
TF if the cross-price elasticity of demand is equal to 0.78 then as the price of good 1 increases by 1% , the quantity demand of good 2 decreases by 0.78%
false
TF if the cross-price elasticity of demand is equal to 0.78 then the relationship between the two goods conidered is substitute
false
TF if the cross-price elasticity of supply is equal to 0.78 then as the price of good 1 increases by 1%, the quantity supplied of good 2 decreases by 0.78%
false
TF if the cross-price elasticity of supply is equal to 0.78 then the relationship between the two goods considered is substitute
false
TF if the own-price elasticity of supply is equal to 0.78 as the price increases by 1% the quantity supplied decreases by 0.78%
false
TF if the own-price elasticity of supply is equal to 0.78 the slope of the supply curve is relatively flat
false
TF the cross price elasticity of demand of bananas with respect to apples equals the cross price elasticity of demand of apples with respect to bananas
false
for which of the pairs of goods would one expect a negative cross-elasticity of demand
football ticket and concert ticket
market demand curve is obtained by ___ all the demand curves for the individual consumers in the market
horizontally summing (adding)
for an inelastic product, an increase in production price will cause the total revenue____
increase
an increase in demand (by shifting the demand curve) will
increase the equilibrium and increase the equilibrium quantity
many agricultural products are considered to be ___ in demand
inelastic
the responsiveness of quantity demanded to changes in price can be classified as
inelastic unitary elastic
price elasticity of demand
it is defined as the percentage change in the quantity demanded relative to the percentage change in price
who make decisions in the marketing system
producers processors consumers
objectives of prices in a marketing system
provide information and incentives for efficient decision-making, and allow for compromise between producers' and consumers goals
change in demand
results from changes in the quantity purchased due to factors other than a change in the product price -that is, if something other than the good's own price change, the position of the curve changes
the heart of price information in competitive market economy is the ____ analysis or the law of supply and demand
supply and demand
individual consumer's demand curve
the demand curve slopes downward and to the right it is called negatively sloped
elastic demand response price increase
total revenue decrease
inelastic demand response to price decrease
total revenue decrease
elastic demand response price decrease
total revenue increase
inelastic demand response to price increase
total revenue increase
T/F if the own-price elasticity of demand is equal to -1.78 as the price increases by 1% the quantity demanded decreases by 1.78%
true
T/F if the own-price elasticity of demand is equal to -1.78 the slope of the demand curve is relatively flat
true
TF firms under perfect competition are constantly searching for new technology that will increase output and reduce production costs
true
TF for a monopolist, the individual firm's supply curve is the market supply curve
true
TF if the cross-price elasticity of demand is equal to 0.78 then an example of this relationship would be ham and eggs
true
TF if the cross-price elasticity of supply is equal to 0.78 then an example of this relationship would be wool and lambs
true
TF if the own-price elasticity of supply is equal to 0.78 this is classified as being inelastic
true
TF the competitive industry is considered to be an efficient industry
true
TF the invisible hand is the unregulated operation of the market that results in efficient production
true
TF the law of supply states that the quantity of goods or services offered to a market will vary directly with the price of the goods or services
true
TF the own price elasticity of supply for orange equals the own price elasticity of demand for orange
true
a monopolistic competition is a market structure that has elements of both perfect competition and oligopoly
true
substitutes
Edab>0 Ex. beef and pork, apple and orange
cross price elasticity of demand formula
% change in quantity of product A ( Q2a-Q1a/Q1a) ---------------------------------------------- %change in price of product B (P2b-P1b/P1b)
price elasticity of demand formula
%change in quantity demanded (Q2-Q1/Q1) ------------------------------------ %change in price (P2-P1/P1)
TF a monopoly firm is a price taker
false
if the own price elasticity for the beef is -0.43, one would say 100% increases in beef price would lead to a ____ in beef consumption
43% decrease
the absolute value of own-price elasticity of demand for an inelastic response is ___
<0
the cross price elasticity of supply for substitutes is
<0
the cross-price elasticity of demand for complements is ___
<0
the own-price elasticity of supply for an inelastic response is ____
<1
the absolute value of own-price elasticity of demand for a unitary elastic response is ___
=0
the cross price elasticity of supply for two independent goods is
=0
the cross-price elasticity of demand for two independent goods is ___
=0
the own price elasticity of supply for a unitary elastic response is __
=0
the absolute value of own-price elasticity of demand for an elastic response is ____
>0
the cross price elasticity of supply for complements is
>0
the cross-price elasticity of demand for substitutes is ___
>0
the own-price elasticity of supply for an elastic response is ___
>1
independent
Edab=0
TF a monopoly is a single buyer market while a monopsony is a single seller market
false
a decrease in supply (by shifting the supply curve) will
decrease the equilibrium price and decrease the equilibrium quantity
population decreases
demand decreases
normal good- income increases
demand increases
demand is more ___ , the more substitutes are available for the product
elastic
demand is more ___ at the retail level than at the farm level
elastic
demand is more ___ for less-frequently purchased "luxury" goods than for basic food items
elastic
if price of a good decreases from $2 to $1.50 per unit, the quantity demanded of the good increases from 2 to 6 units, we can classify this good as a ___ good
elastic
if the estimated that the elasticity of supply coefficient for fresh cut flowers in the U.S is 1.19, then you would conclude that supply was
elastic
T/F if the own-price elasticity of demand is equal to -1.78 this is classified as being inelastic
false
T/F the industry demand curve is the vertical summation of individual demand curve
false
cross price elasticity of demand
measures the responsiveness of the quantity demanded of a good to changes in the price of a related good
own price elasticity of demand
measures the responsiveness of the quantity demanded of a good to changes in the price of that good
imperfect competition includes
monopolistic competition oligopoly monopoly
unitary demand response price increase
no change in total revenue
the price elasticity of demand for product is primarily determined by the ___ for it
number of substitutes
two types of elasticity measures
own price elasticity of demand cross price elasticity of demand
which one of these would shift the demand curve
population
what causes shift of demand curve
population incomes tastes and preferences price of related (or substitute) products
