Exam 1 Flashcards by Mika Takatori

T/F
The consumer is considered king of the food supply chain because product demand and information are derived
from decisions made at the POS

True

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T/F

Since a linear demand function is a straight line, elasticity is constant along all points of the demand curve.

FALSE

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T/F

Equilibrium in an economic market is defined as the point where Qs and Qd intersect to determine price.

TRUE

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T/F

Arbitrage is the act of profiting from price differences across regions or time, ensuring the force of one price.

TRUE

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T/F
Benefits received by a third party as the result of market transactions between a buyer and seller is known as a negative externality

FALSE: Positive externality

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T/F
A farmer making accounting profits of $60,000 per year could be working at an office job making $80,000 per
year. His opportunity cost of not working in an office job is $20,000.

True: value of next best alternative (80-60 = 20)

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T/F

Agricultural marketing is focused on the advertising, branding and promoting products in the retail sector

True

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T/F

Every stage in the process of moving food from “farm to fork” adds value to the final product.

True

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T/F

The basic economic problem is defined as the challenge of allocating scarce resources through a market-based system

TRUE

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T/F

The farmer’s share of every dollar received at the retail level for food products is 85 cents.

False: farmer share is 15 cents

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T/F

An ability to measure elasticity in economics is important to understanding the implications of pricing decisions.

True

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T/F

Price elasticity of demand for a good depends primarily on the degree of substitutability and necessity of that good.

TRUE

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Given supply and demand functions for U.S. wheat flour of: Qs = 2 + 2P and Qd = 10 – 2P
What is the price and quantity at equilibrium?
a. P = 1.50 Q = 5.0
b. P = 2.00 Q = 6.0
c. P = 2.25 Q = 6.5

b. P = 2.00 Q = 6.0,

2+2P= 10-2P
P=2 2+2(2) = Q of 6

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Assume a new dietary preference changes the demand function to: Qd = 8 – 2P. Using the same supply function from above, what is the price and quantity at the new equilibrium? Qs = 2 + 2P

a. P = 1.50 Q = 5.0
b. P = 2.00 Q = 6.0
c. P = 2.25 Q = 6.5

a. P = 1.50 Q = 5.0,

2+2P= 8-2P 
P= 1.5 2+2(1.5) = Q of 5.0

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What did the new dietary preference do to U.S. consumer demand for wheat flour?

a. Increased price and quantity through a shifting of the demand curve
b. Decreased price and quantity through a shifting of the demand curve

b. Decreased price and quantity through a shifting of the demand curve

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T/F
Given the change that occurred due to diet preferences, demand for wheat flour would be higher at the original
equilibrium price?

b. False shift in demand Qd lower at all price levels

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The most important long-run demand shifter for agricultural commodities is:

a. Changes in the price of substitute or complementary goods
b. Trends in consumer tastes and preferences
c. Income levels of both domestic and international consumers
d. Population growth in the United States

c. Income levels of both domestic and international consumers

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T/F
Asset fixity is the term which describes the lagged response in agricultural supply due to existing fixed assets and the seasonal production cycle for commodities.

TRUE

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The U.S. government cuts acreage enrolled in the Conservation Reserve Program for wheat acreage in Eastern Washington and Northern Idaho. From a supply standpoint this will result in:

a. A movement along the supply curve to a higher quantity of wheat supplied.
b. A shifting of the supply curve down and to the right, increasing quantity of wheat supplied

b. A shifting of the supply curve down and to the right, increasing quantity of wheat supplied

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A study of price elasticity of supply shows the PES for cotton supplied at the farm level is + 0.40 and PES for blue jeans at the retail level is +5.32. This illustrates that:

a. Supply is more elastic at the farm (primary) level than the retail manufacturing level.
b. Supply is more inelastic at the farm (primary) level than the retail manufacturing level.

b. Supply is more inelastic at the farm (primary) level than the retail manufacturing level.

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Market analysis of XED shows a 5% increase in the price of Coca-Cola leads to a 5% increase in the quantity demanded of Pepsi Cola. Based on this XED analysis, Coca-Cola and Pepsi would be:

a. Substitutes
b. Complements

a. Substitutes

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The homogeneity condition states that: PED + XED + YED = 1.

a. True
b. False

b. False Homogeneity PED + XED + YED = 0

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Assume you are working with the following demand function which determines wheat demand for flour: Qd = 11 – 2P + 0.5Y where P = Price and Y = Income

The price elasticity of demand (PED) at a Price of $4.00 and Quantity of 3.0 million bushels is:

a. -2.67%
b. -1.00%
c. -.220%

a. -2.67% PED = -2(4/3) = - 2.67

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Qd = 11 – 2P + 0.5Y where P = Price and Y = Income

The price elasticity of demand (PED) at a Price of $2.75 and Quantity of 5.5 million bushels is:

a. - 2.67%
b. - 1.00%
c. - .220%

b. - 1.00%

PED = -2(2.75/5.5) = 1

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Qd = 11 – 2P + 0.5Y where P = Price and Y = Income The price elasticity of demand (PED) at a Price of $1.00 and Quantity of 9.0 million bushels is: a. - 2.67% b. - 1.00% c. - .220%

c. - .220% | PED = -2(1/9) = -.220

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income At what price and quantity point would revenue be maximized? a. P = $4.00 Q = 3.0 b. P = $2.75 Q = 5.5 c. P = $1.00 Q = 9.0

b. P = $2.75 Q = 5.5 Unit

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income At what price and quantity point would moving toward a higher price increase total revenue? a. P = $4.00 Q = 3.0 b. P = $2.75 Q = 5.5 c. P = $1.00 Q = 9.0

c. P = $1.00 Q = 9.0 Inelastic

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income At what price and quantity point would moving toward a lower price increase total revenue? a. P = $4.00 Q = 3.0 b. P = $2.75 Q = 5.5 c. P = $1.00 Q = 9.0

a. P = $4.00 Q = 3.0 Elastic

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income At a Price of $4 and Quantity of 3.0, what would be the change in quantity demanded if price increased 10%. a. Increase of 26.7% b. Decrease of 26.7%

b. Decrease of 26.7% -2.67* 10 = -26.7%

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income What would the difference in total revenue be in moving from P = $4.00 and Q = 3.0 to P = $2.75 and Q = 5.5? a. An increase of $3.125 million b. A decrease of $3.125 million

a. An increase of $3.125 million (4x3) – (2.75 x 5.5) = 15.125- 12 = + 3.125

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income What is the YED at a price of $1, quantity of 9 billion bushel and income of $50? a. Positive 0.09 b. Negative 0.09 c. Positive 2.78 d. Negative 2.78

c. Positive 2.78 YED = c (Y/Q) = +.5 x (50/9) = + 2.78

Qd = 11 – 2P + 0.5Y where P = Price and Y = Income Based upon the above calculation for YED, wheat would be considered an inferior good. a. True b. False

b. False Positive YED = Normal Good

A north Idaho hay facility converts 1200-pound bales into 50-pound cubes for retail hobby farms. A. Form B. Time C. Place

A. Form

A grocery store stocks a special front-door display of snacks and beverages on Super Bowl Sunday. A. Form B. Time C. Place

b. Time

A distributor builds a gas and convenience store right across the parking lot from a motel. a.Form b. Time c. Place

c. Place

A fuel distributor placing gas stations at freeway exits would be a good example of what type of utility? A. Time B. Form C. Place

C. Place

Given a corn demand function: Qd = 11 – 2P What is the difference in quantity of corn demanded if price increases from $3 to $4? A. Increase of 2 billion bushels B. Decrease of 2 billion bushels

B. Decrease of 2 billion bushels

Which of the following would not be a demand “shifter” for a commodity? A. Change in consumer taste & preference B. Growing incomes in third-world countries C. Price of that commodity decreasing D. Increased population across the globe

C. Price of that commodity decreasing

``` Agricultural marketing activities not only add value, but also add to the cost of food. What percent of the retail food cost goes to marketing activities? A. 15% B. 25% C. 50% D. 85% ```

D. 85%

Storage, processing and transportation would be included in which of the following marketing functions? A. Exchange B. Physical C. Facilitating

B. Physical

``` Who is the primary driver of the agricultural marketing system? A. Producer B. Consumer C. Processor D. Marketer ```

B. Consumer

Given a corn supply function of: Qs = - 1 + 2P What would be the difference in quantity of corn supplied if price increases from $2 to $3? A. Increase of 1 billion bushel B. Decrease of 1 billion bushel C. Increase of 2 billion bushel D. Decrease of 2 billion bushel

D. Decrease of 2 billion bushel

``` Two factors unique to agricultural supply which explain a slow supply response to a price increase are: A. Elasticity B. Asset Fixity C. Asymmetrical Function D. Production Cycle E. A & C F. B & D ```

F. B & D

``` All of the following are examples of complementary goods except: A. Hot Dogs & Hot Dog Buns B. Peanut Butter & Jelly C. Coca Cola & Pepsi D. Laptops & Computer Software ```

C. Coca Cola & Pepsi

``` A commodity which sees a 25% decline in quantity demanded for a 10% increase in price would be considered: A. Elastic B. Unit Elastic C. Inelastic ```

A. Elastic

The cross price elasticity (XED) of demand for salad dressing with respect to price of salad is a negative 2.5. This means the two goods are: A. Complements B. Substitutes

A. Complements

Given Qd = 8 - 0.5(P) where P = $5 and Q = 6: What is the PED and is it elastic or inelastic? A. .42 Elastic B. .42 Inelastic

B. .42 Inelastic | PED = - 0.5 x (5 ÷ 6) | PED | = .42 < 1 Inelastic

Your XED analysis for butter and margarine shows that a 1% increase in the price of butter leads to a 1.5% increase in demand for margarine. Butter and margarine would be considered: A. Substitutes B. Complements

A. Substitutes

Given a YED for restaurant meals of +1.67 and a YED for fast food meals of -3.0; which type of meal would be considered a normal good? A. Fast Food Meals B. Restaurant Meals

B. Restaurant Meals

Effective Demand

Desired quantity of a good, backed by the ability to buy at that price

Derived Demand

Explains why the consumer is considered king

Utility

Economic concept that suggests consumers buy a good that gives them the most “bang for the buck”.

Law of Supply

Characterized by an upward sloping curve

Diminished Utility

Concept that as consumption of a good increases, price must decline entice additional consumption.

Law of Demand

Formal inverse relationship between quantity demanded and price.

Substitution

Concept that as price of a good decreases, other goods appear more expensive

Income Effect

Concept that as price of a good decreases, real income of consumer increases.

Unintended Consequence

When a policy creates an outcome opposite of the policy’s intent.

Externality

Exists when a third party is harmed or benefited by a market transaction

Value

A person’s maximum willingness to pay for a good.

Opportunity Cost

The value of the next best alternative.

Point of Sale

Registers consumer information which initiates supply chain response.

Price Elasticity

Relationship of percent changes in quantity to percent changes in price

``` The Force of One Price is ensured by: A. Equilibrium B. Transaction Cost C. Arbitrage D. Hedging ```

C. Arbitrage

Economic profit is measured by subtracting the value of the next best alternative from the accounting profit of another alternative. A. True B. False

A. True

Within the food supply chain, PED and PES tend to be highest at the farm level. A. True B. False

B. False

``` All activities involved in moving food from farm to fork is best defined as: A. Merchandising B. Market Development C. Business Marketing D. Agricultural Marketing ```

D. Agricultural Marketing

``` The basic economic problem is: A. Diminishing Utility B. Marginal Returns C. Allocating Scarce Resources D. Profit Maximization ```

C. Allocating Scarce Resources

``` The point at which a consumer becomes complacent about responding to an incentive is best described as: A. Indifference B. Interaction C. Unintended Consequence D. Internality ```

A. Indifference

``` The harm done to a third party as a result of a market transaction is referred to as: A. Market Failure B. Positive Externality C. Negative Internality D. Negative Externality ```

D. Negative Externality

A shift in supply or demand is also known as a structural change in a market. A. True B. False

A. True

Price elasticity of demand (PED) depends primarily on the degree of substitutability and necessity of that good. A. True B. False

A. True

For a commodity with a PED of -8, a 5% increase in price would result in a 40% increase in quantity demanded. A. True B. False

B. False

Given a demand function: Qd = 9 – 2P – 0.3Y at P = 4 Q = 1 and Y of 30. What is YED? A. + 9.0 % B. - 9.0 %

B. - 9.0 % YED = c (Y/Q) YED = -0.3 (30/1) = -9.0

Given a PED on the demand curve at point A of – 8 and PED at point C of -.28. From which point would raising the price result in higher total revenue? A. Point A B. Point C

B. Point C