Exam 2 Flashcards
Which of the following is NOT a characteristic of a monopoly?
a. Firm’s demand = market demand
b. Firm controls quantity supplied
c. Differentiated product
d. Provides a higher quantity at a lower price
d. Provides a higher quantity at a lower price
Price for gas in Moscow has been stable. One firm lowers the as price $0.10 per gallon to get more business. Assuming this market is an oligopoly, What do you expect other firms to do?
a. Increase their gas price
b. Decrease their gas price
b. Decrease their gas price
Markets: Perfect, Oligopoly, Monopoly.
Which has the lowest Price making ability?
Perfect Market: “price-taker”
Markets: Perfect, Oligopoly, Monopoly.
Which has the highest price making ability?
Monopoly: “Price-maker”
Markets: Perfect, Oligopoly, Monopoly.
Which has the lowest Economic profits?
Perfect Market
Markets: Perfect, Oligopoly, Monopoly.
Which has the highest Economic profits?
Monopoly: ensured by large barrier to entry
Markets: Perfect, Oligopoly, Monopoly.
Which has the lowest market share?
Perfect Market
Markets: Perfect, Oligopoly, Monopoly.
Which has the highest market share?
Oligopoly: controls a larger share of the market or process
Markets: Perfect, Oligopoly, Monopoly.
Which has the lowest Relative Price Levels?
Perfect Market
Markets: Perfect, Oligopoly, Monopoly.
Which has the highest Relative Price Levels?
Monopoly
Markets: Perfect, Oligopoly, Monopoly.
Which has the lowest Supply chain influence (Bargaining)?
Perfect Market
Markets: Perfect, Oligopoly, Monopoly.
Which has the highest Supply chain influence (Bargaining)?
Oligopoly: establish supply agreements to get lower prices, Drive efficiency and provide a lower price… form of barrier
Which of the following types of market structure has the greatest overall market power and influence in the food supply chain?
a. Perfect Competitive
b. Oligopoly
c. Monopoly
b. Oligopoly
What are the 5 systems of price discovery?
Individual Negotiation Central Market Auction Formula Pricing Collective Bargaining Administered Pricing System
All of the following are a form of collective bargaining except:
a. a grain cooperative negotiating a malt barley contract on behalf of it’s members
b. Negotiating directly with a buyer for the high protein wheat in your farm storage
c. Dairy farmers of America arranging s price for cheese from milk delivered to the coop
d. Shepard’s Grain locating a regional market to establish a flour price from grain delivered by it’s members
b. Negotiating directly with a buyer for the high protein wheat in your farm storage
Which of the following price discovery systems had the highest cost per transaction?
a. collective bargaining
b. Individual Negotiation
c. Central Market
d. Formula Pricing
b. Individual Negotiation
Which of the following price discovery systems had the lowest cost per transaction?
a. collective bargaining
b. Individual Negotiation
c. Central Market Auction
d. Formula Pricing
c. Central Market auction
True or False
Production contracts pay a fee for providing a service whereas marketing contracts pay a market price for providing a commodity
True
Benefits of a vertical integration include all of the following except:
a. Addresses “Hold Up” in a market
b. Supply chain efficiency
c. Allows farmer ability to make independent decisions
d. Capturing additional margins
c. Allows farmer ability to make independent decisions
In 1969 only _____% of U.S. farms utilized contracts… with _____% of the value of U.S. ag production covered by a contractual agreement.
9
11
In 2008 only _____% of U.S. farms utilized contracts… but nearly _____% of the value of U.S. ag production was covered by a contractual agreement.
12
39
_____% of the Value of U.S. production is done under contract
40
Contracting _____ with size.
Increases
Crops = _____ contacts
Marketing
Livestock = _____ contracts
Production
Value of Production: Crops = ~_____% Livestock = ~_____%
40
60
Which of the following agricultural industries is the largest user of integrated production contracts?
a. Wheat
b. Dairy
c. Hogs
d. Poultry
d. Poultry
Poultry & eggs = _____% contracted
90
Hogs = _____% contracted
68
Dairy = _____% contracted
54
Tobacco = _____% contracted
99
Higher debt = _____ contracting
Higher
Contract usage tends to be the highest in which of the following situations:
a. Larger commercial farms
b. Farms with higher debt
c. Farms with significant investments in specialized equipment
d. All the above
d. All the above
_____% of the value of U.S. production is under contract use.
40
_____% of crop production is under contract use. (primarily Sugar beets, Peanuts & Tobacco)
27
_____% of livestock production is under contract use. (primarily Poultry & Hogs)
53
The basic balance sheet equation for a storable commodity is:
a. Supply plus Demand = Ending stocks
b. Supply minus Demand = Ending stocks
c. Stocks plus Imports = Total supply
d. Demand minus Supply = Ending stocks
b. Supply minus Demand = Ending stocks
How do we determine “production”?
Harvested Acres x Yield
True or False
Crop markets tend to be the largest user of production contracts while hog and poultry markets are the largest user of marketing contracts.
False
Contacts only cover: _____% Grain Market _____% Cattle Market
25
30
Primary differences between fundamental analysis of cattle versus grain markets include all of the following except:
a. Cattle are a non-storable commodity
b. Cattle analysis uses a pipeline approach
rather than a balance sheet approach
c. Cattle demand analysis does not include exports as a component
d. Cattle analysis adjusts supply forecasts to account for missing production information
c. Cattle demand analysis does not include exports as a component
All of the following are attributes of a speculator except:
a. Trade futures to profit from a price change
b. Provides liquidity to futures markets
c. Holds no ownership in cash commodities
d. Trades futures to protect against an adverse price change
d. Trades futures to protect against an adverse price change
The primary factor which allows a monopoly to capture long-term economic profits:
a. Numerous buyers & sellers
b. Homogenous product
c. institutional involvement
d. large barriers to entry
d. large barriers to entry
Which market structure provides the highest qty of product to the consumer at the lowest cost?
a. Monopoly
b. Oligopoly
c. Oligopsonistic
d. Perfectly competitive
d. Perfectly competitive
True or False
A kinked-demand curve helps explain why an oligopolist follows a competitor’s price decrease.
True
Which of the following is the best example of an absolute “price-maker” in a marketplace?
a. A GMO corn breeder
b. A Wheat producer
c. A fast-food franchise
d. A brand-name gas station
a. A GMO corn breeder
Which of the following is the best example for second-degree price discrimination?
a. Senior discounts at movies
b. Higher insurance rate for teens
c. Discounts for qty purchases
d. Pricing based on race
c. Discounts for qty purchases
Considerations when adopting a price discovery system include all of the following except:
a. Ensuring equitable returns
b. Minimizing costs
c. Limiting the number of participants
d. Accurate price signals and quality
c. Limiting the number of participants
Which of the following price discovery system would be expected to provide the lowest cost per transaction?
a. Individual Negotiation
b. Central Market Auction
c. Collective bargaining
d. administered pricing
b. Central Market Auction
A negotiator working on behalf of producers which belong to a vegetable growing cooperative would best describe which type if the following price discovery systems?
a. Individual negotiation
b. Central Market Auction
c. Collective bargaining
d. administered pricing
c. Collective bargaining
True or False
A market which has many buys and many sellers is defined as a thin market.
False
True or False
Crop markets tend to utilize marketing contracts and livestock markets tend to utilize integrated production contracts.
True
Benefits of vertical integration include all of the following except:
a. Supply chain efficiency
b. Capturing additional margin
c. Addressing “holdup” in a market
d. Allowing independent farm decisions
d. Allowing independent farm decisions
True or False
Ag contracts are defined as agreements between producers and buyers, made prior to harvest, which detail terms under which ownership of a commodity are transferred from the farm.
True
Usage of Ag contracts tends to increase with each of the following factors except:
a. Size of Farm
b. Debt level of the farm
c. Net worth of the farm
d. Farms with specialized equipment
c. Net worth of the farm
True or False
Grain and cattle producers are less likely to utilize contracts because of the availability of pricing alternatives using futures and options markets.
True
True or False
The basic USDA balance sheet equation for a storable commodity is supply minus demand equals ending stocks.
True
Risk-management in Ag production entails:
a. Ensuring profitable output price
b. Protecting profitable margins
c. Fundamental & technical analysis
d. All the above
d. All the above
If analysis o the beef market shows cattle-on-feed numbers to be significantly higher than expected, your expectation would be for short-term beef prices to:
a. Increase (go higher)
b. Decrease (go lower)
b. Decrease (go lower)
An occurrence on a price chart where prices take out both the previous high and low price is best defined as:
a. Trendline
b. Trading Range
c. Reversal
d. Break-out
c. Reversal
True or False
Risk management involved determining price outlook by using fundamental analysis to evaluate supply and demand and using technical analysis to identify price targets and objectives; all to protect a profitable price or margin for an agribusiness.
True
True or False
A futures contact is a standardized agreement which trades in a central market, specifying qty and quality of a commodity, with the agreement backed by a good faith margin deposit
True
True or False
In futures trading, an “offset” is known as the act of a buyer or seller taking the opposite position to close an open trade
True
Which of the following is NOT one of the three primary determinants of market structure?
a. Barriers to entry or exit
b. Product differentiation
c. Institutional involvement
d. Number of buyers and sellers
c. Institutional involvement
Which of the following is the best example of second degree price discrimination?
a. Senior citizen discounts at the movie theatre
b. Higher car insurance for teenaged drivers
c. Pricing based of the race of customers
d. Discounted pricing for large volume purchases
d. Discounted pricing for large volume purchases
Prices for gasoline in Moscow have been relatively stable. Assuming the Moscow gasoline market is an oligopoly, what would you expect other firms would do if one gas station lowered price to get more customers?
a. Increase their price
b. Decrease their price
b. Decrease their price
Which market structure shown below would be expected to maximize consumer surplus?
a. Monopoly
b. Oligopoly
c. Perfectly Competitive
c. Perfectly Competitive
Which market structure shown below is expected to provide the lowest quantity at the highest price?
a. Monopoly
b. Oligopoly
c. Perfectly Competitive
a. Monopoly
Which of the following is the primary determinant for ensuring long-run economic profit for a monopoly?
a. Differentiated product
b. Significant barriers to entry
c. Ability to be a “price-maker”
d. Efficiency of the operations
b. Significant barriers to entry
Which of the following is NOT a factor in oligopoly pricing behavior?
a. Strategy
b. Interdependence
c. Ability to Make Unilateral Decisions
d. Product Differentiation
c. Ability to Make Unilateral Decisions
Of the following, which is the best example of a“price-taker” in a perfectly competitive market?
a. A GMO corn breeder
b. A wheat producer
c. A fast food franchise
d. A brand-name gas station
b. A wheat producer
True or False
The size of a firm is the primary determinant of market power.
False
True or False
A thin market is one which has many buyers, many sellers and many transactions.
False
The primary component of a successful price discovery system using formula pricing is:
a. Locating a centralized information service
b. Assigning a skilled negotiator to establish price
c. Buyer and sellers agreeing on a third-party base price
d. Controlling exchange costs per transaction
c. Buyer and sellers agreeing on a third-party base price
Challenges to maintaining a successful collective bargaining pricing system include:
a. Establishing a centralized information service
b. Assigning a skilled negotiator to establish price
c. Ensuring all participants stay within the group
d. All the above
d. All the above
Considerations when adopting a price discovery system include all of the following except:
a. Ensuring equitable returns to participants
b. Minimizing costs to both buyers and sellers
c. Providing accurate price signals and quality
d. Limiting the number of buyers and sellers
d. Limiting the number of buyers and sellers
True or False
Government involvement in an administered pricing system can distort true market prices.
True
Idaho Department of Lands calculates a fee for cattle grazing rights on land owned by the state is an example of _____.
Administered Pricing
Selling a wheat option on the Chicago Board of Trade is an example of _____.
Central Market Auction
Chobani will pay your milk processing company 92% of today’s average price quoted on the CME Class III dairy price is an example of _____.
Formula Pricing
A feedlot owner negotiates a price directly with you to buy feeder cattle from your own feedlot is an example of _____.
Individual Negotiation
Shepard’s Grain sets a pricing arrangement with a regional miller to supply wheat grown locally by its members is an example of _____.
Collective Bargaining
Risk management in agricultural production primarily entails:
a. Ensuring an output price that covers breakeven cost of production
b. Protecting profitable margins for livestock feeding operations
c. Utilizing fundamental and technical analysis to determine price direction and objectives
d. All the above
d. All the above
True or False
Fundamentals is identifying price targets on a chart and technical analysis is exporting supply and demand factors.
False
U.S. winter wheat plantings are forecast at 46 mln acres, harvested acreage is forecast to be 38 mln acres and the trendline yield for U.S. wheat is 50 bushels per acre. Given these numbers, what is expected U.S. wheat production?
a. 1.9 billion bushels
b. 2.1 billion bushels
c. 2.3 billion bushels
d. 2.5 billion bushels
a. 1.9 billion bushels
Given your answer for U.S. wheat production above, what would be your expectation for wheat prices if yields came in 30% below the trendline yield due to an unexpected drought?
a. Lower Prices
b. Higher Prices
b. Higher prices
If fundamental analysis of the beef market shows cattle on feed numbers are increasing, and significantly higher than expected, you would expect beef prices over the next six months to:
a. Increase (go higher)
b. Decrease (go lower)
b. Decrease (go lower)
Challenges involved with using the cattle on feed report within the pipeline approach to forecasting beef supply is:
a. Only large feedlots with 1,000 head or more of placements are reported
b. Measuring the impacts of weather on rate of weight gain and death loss
c. Variability of the final carcass weight at slaughter
d. All the above
d. All the above
True or False
Exports for grain and livestock markets have very little influence on fundamental price performance.
False
True or False
Cattle cycles tend to run in durations of 7 to 10 years and indicate whether herd size is expanding or contracting.
True
True or False
A good methodology for determining price outlook utilizes both fundamental and technical analysis.
True
When comparing the speculator to a hedger, the primary difference of being a speculator is:
a. The speculator trades only to profit from a change in price
b. The speculator has no ownership of the cash commodity
c. The speculator provides liquidity to the market by taking the opposite side of hedging positions
d. All the above
d. All the above
True or False
Technical analysis is interpreting price charts to identify trading targets and objectives, whereas fundamental analysis is examining supply and demand factors to determine a longer-term price outlook.
True
In futures trading, an “offset” is best defined by which of the following:
a. A buyer taking the opposite position in the market to accommodate a seller
b. A buyer or seller of a futures contract taking the opposite position to close an open trade.
c. The number of futures contracts traded on a particular day in a commodity exchange.
d. An exchange requirement for meeting the necessary financial requirements for trading.
b. A buyer or seller of a futures contract taking the opposite position to close an open trade.
A speculative trade on a single wheat futures contract which was bought at $5.00 per bushel and offset at $5.50 would result in what type of financial outcome for the trader (ignoring commissions):
a. A profit of $2500
b. A loss of $2500
c. A profit of $1000
d. A loss of $1000
a. A profit of $2500
True or False
A traditional spot market contract does not provide any protection against price risk for a commodity.
True
True or False
Holdup is defined as the risk of a producer in a limited market with a highly perishable commodity being held captive with a low price from a buyer.
True
