Ag Marketing Exam 2

Refers to any other costs of the buyer or seller incurs in the transaction-

transaction cost

Refers to the money the buyer gives to the seller-

transaction price

Calculate the short- run own- price elasticity of demand for pork, and indicate whether it is inelastic, elastic or unit elastic-

-3.12 X (172/1325) = -0.405, inelastic

Calculate the long-run income elasticity of demand for pork. Is pork a normal or inferior good?

0.25 X (3069/1325) = 0.579, normal

In a supply and demand diagram, if demand decreases and supply increases: b

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if demand increases and supply decreases: a

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if demand increases and supply decreases: c

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if demand increases and supply increases: c

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if demand increases: a

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if supply increases: b

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

When the price of a good falls by 8%, consumers respond by increasing their purchases 16%. Calculate the own-price elasticity for this good and indicate whether it is inelastic, elastic or unit elastic-

16/-8= -2, elastic

Calculate the long-run cross-price elasticity of demand for pork with respect to the price of beef. Are pork and beef substitutes or compliments?

2.81 X (226/1325) = 0.479, substitutes

If a price is above the equilibrium price, we say there is: a

An excess supplyAn excess demand Neither

Branch of economics that covers agriculture markets-

Agriculture economics

The act of profiting from price differences across regions or time periods-

Arbitrage

In which monopolistic competition does each firm have a different market share?

Asymmetric Monopolistic competition

Why did the buffalo almost go extinct, but cattle have never come close to extinction?

Basically, bc of ownership. If the animal is not owned, there is little incentive to reserve animals for breeding bc someone else may come along and profit from them.

The elasticity of supply for rice in the United States and Vietnam is 0.4 and 0.15 respectively. Think about the differences in these two countries that might cause such disparities. Explain in a clear, logical paragraph. -

Because the of the nature of rice production in Vietnam, they have less substitutes for that product. Thus, they are less sensitive to changes in the rice price than US farmers, and their supply is less elastic.

Branch of economics that covers the topics of psychology of individuals in economic decisions-

Behavioral Economics

These types of economics fill the interface between economics and psychology-

Behavioral economics

In a monopoly, the marginal revenue curve lies(above/below) the demand curve?

Below

A consumer's marginal value of the first and second hamburger is $5 and $3, respectively. If both hamburgers are purchased at a price of $2, what is the consumer surplus?

Consumer surplus= ($5 - $2) + ($3 -$2) = $3 +$1= $4

If a good is an inferior good and income rises, the demand for the product will INCREASE/DECREASE-

Decrease

An increase in the marginal cost of production for a good INCREASE/ DECREASE/ DOES NOT CHANGE the supply of that good-

Decreases

If the price of a substitute good falls, the demand for a product INCREASES/DECREASES-

Decreases

Revenues minus opportunity cost-

Economic profits

A measure of how sensitive one variable (Y) is to changes in another variable (X)-

Elasticity

Branch of economics that covers the environment and natural resources-

Environmental and resource economics

Economists that deals with issues like pollution and global warming?

Environmental economists

What are the three economic forces?

Incentive, Interactions and indifference

If a good is a normal good and income rises, the demand for the product INCREASES/DECREASES-

Increase

If the price of a complement good falls, the demand for a products INCREASES/DECREASES-

Increases

Fill in the blank: Economists assume that the marginal opportunity cost of production is _____in quantity produced and the marginal consumer value is ______in quantity consumed.

Increasing, decreasing

If the own-price elasticity of demand is greater than 1 (or less than one in absolute value), we say the demand is?

Inelastic

States that government policies often create perverse incentives, leading to an outcome the opposite of the policy's intent-

the law of Unintended Consequence

These types of economists study the income gap between whites and minorities in the United States-

Labor Economists

Branch of economics that covers labor markets-

Labor economics

This law states that if transaction costs are zero, the price of identical goods should be identical across regions-

Law of one price

A period of time in which firms can very all their inputs and consumers have fully adjusted to price changes-

Long-run

The field of economic study dealing with large economies, namely economic growth and inflation-

Macroeconomics

Consumers' willingness-to-pay for one additional unit of a good is referred to as?

Marginal value

The branch of economics that studies small economies, individual markets, business behavior and individual behavior-

Microeconomics

If the demand curve is a vertical line, we say the demand is?

Perfectly inelastic

Model that assumes many buyers and sellers, each with roughly the same market power-

the perfect competition model

Ashely owns an agriculture advertising agency, which is currently making zero economic profits. Does this imply that Ashley is not making any money? Does this imply that unless Ashley shuts down business she will go bankrupt?

No, Regular or accounting profits equal revenue minus accounting costs, and accounting costs do not account for opportunity costs. Economic profits equal total revenues minus opportunity costs. Earning zero economic profits only indicates that Ashley is no better off running her advertising agency than she would be in her next best alternative. It does not indicate that she is in financial turmoil.

In 1960 the price of corn was $1.00, whereas the corn price was $2.12 in 2005. Are corn farmers receiving a higher real price in 2005?

Not necessarily, because the number of toys a dollar could buy was more in 1960 than in 2005.

A market structure where there are many buyers and a few sellers??

Oligopoly

The four major factors determining price are?

Opportunity cost of production, consumer value, negotiating power, and psychological and social considerations

Agriculture economists at the United States Department of Agriculture have estimated the following elasticities. If you are a producer in the beef industry, which is more threatening competitor for you- the poultry, pork, or fish industry? Explain why.

Pork is a more threatening competitor. A 1% fall in the pork price steals more market share of beef then a 1% fall in poultry or fish prices. Thus, pork is a closer substitute for beef, making it a more threatening competitor

Suppose people are indifferent between $1,000 today and $1,100 in one year. Then $1,000 is the is the what of $1,100 in one year?

Present value

The elasticity of demand for rice in the United States and Vietnam is -0.55 and -0.15, respectively. Think about the differences in the cultures of these two countries that might cause such disparities. Explain in a clear, logical paragraph. There is no right or wrong answer, we are just looking for a logical argument. -

Rice is more of a staple food in Vietnam than in the US.

Soybeans are harvested in November. The price of soybeans on March 1 is $5.00 and the expected price on July 1 is $5.50 per bushel. What do we know about the monthly per bushel cost of storing soybeans?

So, we know that the time between March and July is four months. Knowing that we can divide $.50 by 4 to give us $.125 which tells us that the cost of storage per month is $.125

Crop prices should continually rise between harvests to account for?

Storage costs

The cross-price elasticity for beer and soda is positive. Are the two goods substitutes or complements?

Substitutes

A corporation invents a new type of fertilizer that, if the new fertilizer costs the same as existing fertilizers, would make the farmer $15 more in profit per acre. The corporation owns a patent on this new fertilizer. What do you predict the prices of this new fertilizer would be?

The cost would definitely be higher than the old price. It would be raised almost to what it is profiting the farmer. At least the cost would 2/3 of $15 more which is $10 dollars more per acre than the old fertilizer

What is economics sometimes referred to as?

The dismal science

Suppose the government is considering a ban on specific pesticides. The ban would raise production costs and thus food prices, harming the economy by $20 million. However, the ban would save lives due to fewer carcinogens in food. Explain how the government would use the value of a statistical life to determine if the ban benefits or harms society. -

The government could use the value of a statistical life and estimates on the number of lives saved from the ban to calculate the monetary benefits of the ban. This could then be compared to the $20 million cost of the ban to see if the benefits outweigh the costs.

Ricky Bobby walks onto a used car to interested in purchasing an El Camino. After finding one he likes, he determines the value he places on the car to be $5,000. The used car dealership initially purchased the El Camino for $3,000 and believes, if not sold to Ricky, the car could be sold son for $4,000 but no more. What is the opportunity cost of selling the El Camino to Ricky Bobby? Will the two likely strike a deal? What do you know about the price that will be struck?

The opportunity of selling is $4,000, and the value placed on the car is $5,000. Thus, the two should be able to come to an agreement on price somewhere between $4,000 and $5,000.

Who can avoid the indifference principle?

The owner of fixed resources

Sorghum is harvested in November. Part of the cost of storing sorghum is the interest one could have made by investing the money paid for storage cost. For example, if one pays $2,000 in storage costs and the bank offers a 5% interest rate on certificate of deposits, by paying the storage cost one forgoes the $2,000 X 0.05= $100 that one could have earned. If interest rates fall, what should happen to the price difference for sorghum in April and May?

The price difference should fall. Prices will be higher in April and lower in May.

Wheat is grown in eastern and western Kansas. The price of wheat in eastern Kansas is $3.25 and the cost of transporting wheat across the state is $0.15. What do we know about the price of wheat in western Kansas?

The price in western in western Kansas should be at least $3.25-$.15= $3.10 and no more than $3.25 + $.15=$3.40.

The three main supply curve shifters are what?

The price of related outputs, the price of inputs and technology

The full price of an item can be broken into two parts, what are they?

The transaction price and the transaction cost

A farmer can make accounting profits of $80,000 per year planting corn, $60,000 per year planting canola, or $40,000 per year planting sorghum. Assume only one crop will be planted. What is the opportunity cost of planting corn? What are the economic profits of planting corn?

The value of the next best alternative, which is planting canola and earning $60,000. Economic profit from corn are then $80,000-$60,000= $20,000.

Producer surplus measures: a

Total revenues minus variable costsTotal revenues minus fixed costs Total revenues minus total costTotal revenues

T/F not every arbitrage will make money, but if one understands market forces, significant profits can be made over time-

True

A person's maximum willingness-to-pay for something is referred to as?

Value

An equation detailing quantity demanded as a function of numerous variables, such as own-price, the price of related goods, and income-

a demand function

In a supply and demand diagram, if demand decreases and supply decreases: b

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if demand decreases and supply decreases: c

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

In a supply and demand diagram, if supply decreases: a

a. The equilibrium prices rises b. The equilibrium price falls c. The change in the equilibrium price is ambiguous

Profiting from price difference across markets-

arbitrage

If a price decrease of one good causes demand for another good to increase, those two goods must be-

complements

If input prices for an industry do not change as industry production rises and falls, we say this is a?

constant cost industry

This term refers to the value consumers extract from the opportunity to purchase a good at a particular market price-

consumer surplus

This curve indicates the quantity consumers will purchase at each possible market price-

demand curve

A fictitious economic story, where many complexities of the world are ignored and only a few important aspects are analyzed-

economic model

The study of the allocation of scarce resources-

economics

If quantity demanded is very sensitive to price changes we say that demand is-

elastic

Is determined by or within a model-

endogenous variables value

Uses elasticities to determine how price and quantity will change in response to supply or demand shocks-

equilibrium displacement model

A price lower than the equilibrium price leads to an-

excess demand

Is determined outside a model, and its value is taken as given by a model-

exogenous variable's value

What exists when a third party is benefited or harmed by a market transaction-

externality

Calculates the equilibrium of multiple markets simultaneously-

general equilibrium model

The demand for this good rises as income falls-

inferior goods

A word referring to "one more" or "one additional unit"-

marginal

The additional cost incurred from increasing output by one unit-

marginal cost

The change in output realized from increasing input use by one unit-

marginal product

A form of competition where each firm produces a differentiated product and firms may freely enter and exit the industry-

monopolistic

A market structure where there are many buyers but only one seller of a good with no close substitute-

monopoly

A market structure where there are many sellers but only one buyer of a good with no close substitute-

monopsony

The value of the next best alternative-

opportunity cost

Equals the percent change in quantity demanded divided by the percent change in price-

own- price elasticity of demand

Profits not including fixed costs are measured by the area below price and above marginal cost for all quantities produced-

producer surplus

If a price increase for another good, those two goods are-

substitutes

This curve indicated the quantity firms will supply at each possible market price-

supply curve

An unspoken, but understood agreement to collude and set high prices-

tacit collusion

Shows the relationship between quantity demand and a single variable, its own price-

the demand curve