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Agricultural Economics Chapter 1 Study Set > AGEC Test 2 - Chapters 5,6,7,8 > Flashcards

AGEC Test 2 - Chapters 5,6,7,8 Flashcards

1
Q

Define elasticity

A

the ability of an object or material to resume its normal shape after being stretched or compressed

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2
Q

What are the major forms of elasticity?

A
  1. price elasticity of demand
  2. income elasticity of demand
  3. Cross-price elasticity of demand
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3
Q

Define price elasticity of demand

A

a measurement of the change in demand for a good or service in relation to a change in its price

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4
Q

Price elasticity in relation to supply and demand

A
  1. When prices rise, demand usually drops. When prices drop, demand usually rises.
  2. When supply rises, prices usually drop. when supply drops, prices usually rise.
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5
Q

The formula for price elasticity of demand

A

% change in quantity demanded divided by % change in price

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6
Q

Define Giffen Good

A

a non-luxury product for which demand increases as the price increases and vice versa, thus defying standard laws of demand

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7
Q

Define normal good

A

a good that consumers demand more of as their income increases

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8
Q

Define inferior good

A

a good whose demand decreases when consumer income rises, unlike normal goods, for which the opposite is observed

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9
Q

An example of a giffen good would be?

A

bread, rice or wheat

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10
Q

Income elasticity of demand formula

A

% change in quantity demanded divided by % change in consumers real income

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11
Q

Define cross-price elasticity of demand (XED)

A

measures the relationship between two goods when the price of one changes

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12
Q

What is cross price elasticity for?

A

Cross-price elasticity measures how sensitive the demand
of a product is over a shift of a corresponding product
price.

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13
Q

What is an example of cross price?

A

A cross-price elasticity example could include two goods
such as coffee and tea. If the price of coffee were to
increase, the quantity of tea demanded would also
increase. This indicates that the two products are
substitutes for one another.

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13
Q

What are the determinants of the elasticity of demand

A

Availability of substitutes for the commodity
▪ Alternative uses for the commodity
▪ Type of market
▪ Farm level vs. retail level
▪ Domestic vs. export market
▪ Time frame
▪ The percentage of the income spent on the
commodity
▪ Luxury vs. necessity

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14
Q

The formula for cross price elasticity of demand

A

% change in quantity demanded of product A divided by % change in price of Products B

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15
Q

Define complementary goods

A

goods that we normally use together

ex. as the price of one goes up, the demand for the other goes down

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16
Q

Types of price elasticity of demand

A
  1. Perfectly elastic demand (Ed = infinity)
  2. Perfect inelastic demand (Ed = 0)
  3. Unitary elastic demand (Ed = 1)
  4. Relatively elastic demand (Ed > 1)
  5. Relatively inelastic Demand (Ed < 1)
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17
Q

Define perfectly elastic demand

A

a demand where any price increase would cause the quantity demanded to fall to zero & reducing the price of a good or service will not increase sales

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18
Q

What is the perfectly elastic demand curve? Why is that its curve?

A

Perfectly elastic demand curve
is horizontal straight line. This is because at the given price
the quantity demanded is infinite, even if there is a slight
change in the price the demand
becomes infinity & hence the curve is flat.

19
Q

Marginal Revenue Formula

A

change in total revenue divided by change in quantity sold

20
Q

Revenue formula

A

Quantity x Price

21
Q

Marginal Cost Formula

A

Change in total cost divided by change in quantity

22
Q

Average variable cost formula

A

variable cost divided by output

23
Q

Average fixed cost formula

A

total fixed cost divided by output

24
Q

Fixed cost formula

A

total cost of production - variable cost per unit X number of units produced

25
Q

total variable cost formula

A

quantity of output X variable cost per unit of output

26
Q

Total cost formula

A

fixed cost + variable cost

27
Q

Marginal Product Formula

A

increase in production output divided by change in variable input

28
Q

Define law of diminishing marginal returns

A

“As successive units of a variable
input are added to a production
process with the other inputs held
constant, the marginal physical
product (MPP) eventually declines”

29
Q

Average physical product (APP) formula

A

APP = TPP/ amount of input

30
Q

Define production function

A

Relationship between output and the factors of production (labor, capital, land, and management).

Y=f(x)
Output = f(labor, capital, land, & management)

31
Q

Define monopsony

A

a market in which there is a single buyer

32
Q

Define oligopsony

A

a market with only a few buyers

33
Q

Define monopsony power

A

the ability of the buyer to affect the price of the good or pay less than the price that would exist in a competitive market

34
Q

Define perfect competition

A

a theoretical market structure in which there are no monopolies

35
Q

Define resources

A

A service or other asset used to produce goods & services that meet human needs & wants.

36
Q

Market

A

a place where parties can gather to facilitate the exchange of goods and services

37
Q

Define economic good

A

goods which involve opportunity cost as they are scarce

38
Q

Define free good

A

goods which have no opportunity cost

39
Q

Define price

A

the amount of money that has to be paid to acquire a given product.

40
Q

Firm’s Supply Curve

A

The firm’s supply curve begins at the point on the marginal cost curve where the price of the firm’s product exceeds the shut down price (PSD). As the price rises, the firm equating MC with price will produce more.

41
Q

Define producer surplus

A

Represents the profit realized by firms in the market for specific quantities supplied.

42
Q

When does market surplus exist?

A

when the quantity supplied exceeds the the quantity demanded.

43
Q

When does market shortage exists?

A

when the quantity demanded exceeds the quantity supplied.

44
Q
A
45
Q
A

Agricultural Economics Chapter 1 Study Set (2 decks)

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