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Introduction to Agricultural Economics
Agricultural Economics 105
Spring 2019 First Hour Exam – Version 1
Name____________________________
There is only ONE best, correct answer per question. Place your answer on the attached
sheet. DO NOT RIP THE ANSWER SHEET FROM THE TEST. HAND IN BOTH THE
TEST AND ANSWER SHEET. Each question is worth 2 1/2.
1. Bailey has to make a choice this evening for the hours 8 to 11. Choices are eating out with
friends, going to a movie, or attending the A&M basketball game. Bailey decides to attend
the movie and feels if he was not attending the movie he would go to the basketball game.
Bailey’s opportunity cost of going to the movie is
a. eating out with friends.
b. going to the movie.
c. attending the basketball game.
d. the sum of the opportunity costs of eating out and going to the basketball game.
e. three hours of his time.
2. Marginal benefits are
a. the benefits that arise from an increase in an activity.
b. the benefits that arise from linkages or secondary activities in the economic system.
c. known as consumer surplus.
d. calculated as total benefits minus total costs.
e. the concept associated with production using a single input known as APP.
3. Human capital is
a. the machinery that meets or exceeds safety standards for use by humans.
b. the machinery owned by individuals and corporations but not by the government.
c. dependent on the amount of land used in production.
d. measured as hours of labor.
e. skill and knowledge of workers and owners.
4. Scarcity in economics is
a. when a resource is of limited availability and is of productive use.
b. the condition or quality of being scarce meaning inadequate supply.
c. associated with natural and biological resources but not manufactured resources as
humans can manufacture more capital.
d. when humans have unlimited wants.
e. a through d.
5. Your dad’s Christmas present to your mom was a diamond necklace. He states he bought a
luxury good for your mom because it was expensive. Taking AGEC 105, you correct your
dad by saying price does not matter in the definition of a luxury good; luxury goods are
defined as
a. having a negative income elasticity, meaning people buy less of the good as income
increases.
b. a normal good in which the percentage increase in income is more than the
percentage increase in the good purchased.
c. a normal good in which the percentage increase in income is less than the percentage
increase in the good purchased.
d. are not normal goods, but the percentage increase in income is less than the
percentage increase in the good purchases.
e. Your dad is correct, own-price elasticity is used to define luxury goods
6. As a wheat producer, you know own price elasticity for wheat is -0.2. What is the percentage
change in price if the USDA forecasts a 5% increase in wheat harvested?
a. -1
b. -25
c. -0.04
d. -0.01 e. 5
7. Cheap fast food eateries would most likely be what type of good in society.
a. Normal and necessity
b. Normal and luxury
c. Inferior and normal
d. Inferior
e. Necessity
8. Which is not a trend associated with agriculture?
a. Increasing use of non-labor inputs
b. Decreasing marketing bill
c. Food expenditures as a percent of disposable income increasing
d. A move toward natural food
e. Branching into energy field
Consider the following scenario and table for the next five (5) questions.
The following table represents Billy’s poor record keeping for his firm, Gobble Up. Gobble Up
produces and delivers meals directly to one’s house that require little additional effect to prepare.
He pays each laborer $800.
Labor
Meals
Prepared Fixed
Costs
Total
Variable
Costs
Total
Costs
Marginal
Costs (TPP) MPP
0 0 500 0 500
1 40 20
2 85 45
3 100 15 2900
4 110 10 3700
9. Mail order companies such as Gobble Up are examples of
a. value added in agriculture.
b. decreasing marketing bill.
c. firms using the concept of marginal utility of consumers.
d. increasing number of restaurants.
e. marginal rate of substitution.
10. The MPP for laborers illustrates what law
a. the law of diminishing marginal utility.
b. the law of diminishing marginal product.
c. the law of diminishing marginal technical substitution.
d. the law of increasing marginal product.
e. the law of fixed inputs and outputs.
11. What is Billy’s MPP associated with one (1) laborer?
Place your calculated value on the answer sheet.
12. What are Billy’s total variable costs associated with three (3) laborers?
Place your calculated value on the answer sheet.
13. What is Billy’s MC associated with four (4) laborers?
Place your calculated value on the answer sheet.
14. You work for Chain Reaction Scooter Rental Company. The company wants to increase its
market share in College Station by renting more scooters. How would you suggest they
accomplish this goal?
a. Market equilibrium forces determine the number of scooters rented, so there is not
much you can do.
b. You need to know the own-price elasticity of demand for scooter rentals.
c. Adam Smith noted self-interest is important, therefore, the company needs to become
more self-interested and reduce the number community programs it supports.
d. The company should invoke the law of supply.
e. The company should use the law of demand.
For the next two (2) questions, consider the following scenario.
The price of designer blue jeans has increased by 25%. As a rational consumer, you have
decreased your purchases of designer blue jeans by two but increased your purchases of cotton
shirts whose prices have not changed. Assume both goods are normal goods.
15. The substitution effect can best be stated as.
a. A rational consumer increases purchases of shirts because shirts’ price has not changed.
b. A rational consumer increases purchases of shirts because shirts are relatively cheaper
after the jean price increase.
c. A rational consumer increases purchases of jeans because jeans’ price has increased.
d. A rational consumer decreases purchases of jeans because jeans are relatively more
expensive after the jean price increase.
e. a and c.
f. b and d.
16. The income effect can best be stated as.
a. A rational consumer increases purchases of shirts because effective income has
increased.
b. A rational consumer decreases purchases of shirts because effective income has
decreased.
c. A rational consumer increases purchases of jeans because effective income has
increased.
d. A rational consumer decreases purchases of jeans because effective income has
decreased.
e. a and c.
f. b and d.
17. Park West Apartments have lowered their price per room this semester in an attempt to
increase revenues. What does this suggest about Park West’s assumptions on own-price
elasticity of demand?
a. Elasticity is unitary meaning the percentage change in price equals the percentage
change in dorm rooms occupied.
b. As the price decreases for dorm rooms, the number of rooms occupied decreases both
in the short and in long run.
c. Elasticity is inelastic meaning the percentage change in price is greater than the
percentage change in dorm rooms occupied.
d. Elasticity is elastic meaning the percentage change in price is less than the percentage
change in dorm rooms occupied.
e. Total revenue from dorm rooms will not change.
18. An increase in the price of French fries led to a decrease in the consumption of ketchup.
This indicates the cross price elasticity between ketchup and French fries is most likely
a. positive indicating they are substitutes.
b. negative indicating they are complements.
c. positive indicating they are substitutes.
d. negative indicating they are complements.
e. zero indicating they are independent.
19. Graphically, an increase in the number of vegetarians will cause the demand curve for Tofu
(a meat substitute) to
a. simply move along the demand curve.
b. shift leftward.
c. shift rightward.
d. no change in the demand curve for Tofu.
e. shift right or left depending on income elasticity.
20. Economics is the study of
a. the choices we make because of scarcity.
b. affluence in the world.
c. the distribution of surplus goods to those in need.
d. ways to reduce wants to eliminate the problem of scarcity.
e. a - d.
21. Breakeven price is the price that
a. total costs equal total revenues.
b. total variable costs equal total revenues.
c. below which the producer will not produce.
d. a and c.
e. b and c.
Answer the next three (3) questions based on the following diagram, which shows various short-
run cost curves.
22. Which curve represents average total
costs?
a. A
b. B
c. C
d. D
e. None of the curves
23. Average fixed cost curve is represented by
the curve
a. A
b. B
c. C
d. D
e. None of the curves.
24. Which one of the following statements is FALSE?
a. Average fixed cost decreases with output.
b. Curve B comes closer to curve C as output increases because of a decrease in average
fixed costs.
c. The vertical gap between curves B and C is equal to average variable cost.
d. Curve D represents marginal cost.
e. The vertical gap between curves B and C is equal to average fixed cost.
25. In 1943 Philip Wrigley (of chewing gum fame) owner of the Chicago Cubs started the All-
American Girls Professional Baseball League (movie League of Their Own is roughly
based on this league). Although the league never was profitable, the team and league
owners continued to operate for 11 years. Why did the league continue to operate, even
though they did not turn a profit?
a. The league was able to cover more than all of their variable and fixed costs; so they did
not stop playing.
b. The league was able to cover all of their variable costs and some of their fixed costs, so
they did not stop playing.
c. It was cheaper for the league to close down than play some games and lose money;
therefore, the owners were acting irrational.
d. The league was able to cover only part of their variable costs and none of their fixed
costs, so they did not stop playing.
e. I need to know average marginal cost to correctly answer this question.
Use the following graph and scenario to answer the next three (3) questions.
For spring break, you are going to spend a few days in Cancun Mexico, yea. Your options are to
zipline at Xplor Park or go to the Mayan Water Park. Per day admission prices are $100 to
Xplor Park and $50 to the Mayan Water Park.
26. What is the correct
consumer
equilibrium point if
the consumer’s
budget is $500?
a. G
b. B
c. D
d. E
e. F
27. What changed between line A (nearest) to line C (furthest out)?
a. Price of Xplor Park increased.
b. Your budget decreased.
c. Your budget increased.
d. Price of Mayan Water Park increased.
e. Price of Xplor Park decreased.
28. What changed between line A (nearest) to line B (middle line)?
a. Price of Xplor Park increased.
b. Your budget decreased.
c. Your budget increased.
d. Price of Mayan Water Park increased.
e. Price of Xplor Park decreased.
29. On the graph, which indifference curve has the
largest utility level?
b. A
c. B
d. C
e. D
Consider the following graph for the next three (3) questions.
30. At a market price of $10, the profit maximizing level of output is?
a. 100
b. 125
c. 140
d. 200
e. need to know the per unit cost of the input
31. At a market price of $6, total costs are?
a. Area 8, D, 140, 0
b. Area 6, C, H, 5
c. Area 6, B, 140, 0
d. Area 5, H, 140, 0
e. Area 6, C, B, 125, 0
32. At a market price of $6, profits are?
a. Positive
b. Negative
c. Zero – do not produce
d. Area 8, D, C, 6
e. b and d
33. Hint, consider the definition of income elasticity for a good. The following graph shows
three different demand curves for Tranny the floating duck. Tranny’s original demand curve
is curve B. Curves A and C indicate potential changes
in demand associated with an increase in income.
Curve A would indicate Tranny is
a. a normal good.
b. a normal and necessity good.
c. a normal and luxury good.
d. an inferior good.
e. more information is necessary.
34. Ausy has just finished running a marathon. He is willing to pay $10 for a large water bottle
with water. The race organizers are selling the bottle with water for $8. Ausy buys the
water bottle and receives a consumer surplus of
a. $10 the amount he is willing to pay.
b. $8 the selling price of the bottle.
c. $2 the difference between WTP and the price.
d. $18 the total of WTP and price.
e. need the market price and quantity to calculate consumer surplus.
35. Which of the following statements is FALSE?
a. A consumer has only one indifference curve.
b. Consumer indifference curves are everywhere dense.
c. The marginal rate of substitution is equal to the slope of the indifference curve.
d. Diminishing marginal rate of substitution means that the marginal rate of substitution
decreases as more of the good is consumed.
e. An indifference curve is a curve that shows the combination of goods among which a
consumer has the same level of satisfaction.
36. The marginal utility for Aggie Basketball games is 3 and the price for today’s game is $6,
whereas the marginal utility of eating out at the Chicken is 10 and the price of a burger
and drinks is $20. As a rational consumer you should
a. Shift consumption from basketball games to eating at the Chicken because eating out
costs more than attending the game.
b. Shift consumption from eating out to attending the game because attending the games
cost less than eating out.
c. Shift consumption from attending the game to eating out because the utility from the
last dollar spent is higher for eating out.
d. Shift consumption from eating out to attending the game because the utility from the
last dollar spent is higher for attending the game.
e. Do nothing because the utility per last dollar spent are the same.
37. At a price of $150, Joseph sells 8 dresses but at a price of $50 she sells 12 dresses. Own-
price elasticity for the above changes in price and quantity is
a. [(8-12) ] / [(50-150) ] = -0.04
b. [(8-12) / (8+12) / 2] / [(150-50) / (150+50) / 2] = -0.4
c. [(8-12) ] / [(150-50) ] = 0.04
d. [(150-50) / (150+50) / 2] / [(8-12) / (8+12) / 2]/ = -2.5
e. [(8-12) / (8+12) / 2]/ [(50-150) / (150+50) / 2] = 0.4
38. At the consumer equilibrium, the negative of ratio of marginal utilities is equal to the ratio
of the negative of price ratios. The negative indicates
a. trade-offs between goods consumed in that if consumption of one good increases the
consumption of the other good also increases to keep utility constant.
b. trade-offs between goods consumed in that if consumption of one good increases the
consumption of the other good also increases causing utility to increase.
c. trade-offs between goods consumed in that if consumption of one good increases the
consumption of the other good must decrease to keep utility constant.
d. trade-offs between goods consumed in that if consumption of one good increases the
consumption of the other good also increases causing utility to decrease.
e. it is just an artifact of the math.
39. A firm’s short-run supply curve is given by
a. its marginal cost curve above minimum average variable costs.
b. its marginal cost curve above the breakeven price.
c. its average cost curve the breakeven price.
d. its marginal cost curve above the shutdown price.
e. its average costs curve above the shutdown price.
40. The market or aggregate demand curve is given by
a. the horizontal summation of individual demand curves.
b. the vertical summation of individual demand curves.
c. an individual consumers willingness to pay.
d. consists of those consumers who have both the ability and willingness to pay for the
good.
e. a, c, and d
f. a. and d.
g. b and d.
41. Stage II is the economic stage of production, in this stage
a. MC is increasing because MPP is decreasing
b. MC is decreasing because MPP is increasing
c. MC is increasing because MPP is increasing
d. MC is decreasing because MPP is increasing.
e. Stage II is defined by decreasing FC therefore, decreasing MC.
There are 41 questions only 40 are graded. Please pick the one question you do not want
graded by placing XXX in the answer line. If you do not pick a question, question 41 will
not be graded.
Test Version 1 Name
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