# 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