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  • Introduction to Agricultural Economics

    Agricultural Economics 105

    Spring 2013 First Hour Exam Version 1

    Name____________________________ Section _____________

    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. _________ refers to the implicit cost associated with the next best alternative.

    a. Fixed costs

    b. Variable costs

    c. Alternative costs

    d. Average total costs

    e. Opportunity costs

    2. The own-price elasticity for bottle water is -2.5, whereas, the own-price elasticity for tap

    water is -0.05. Which statement best describe this situation?

    a. Because they are the same product, water, the own-price elasticities should be the same,

    their must be an error in calculating the elasticities.

    b. Bottled water has more substitutes than tap water; therefore, it is more elastic.

    c. The elasticities are reasonable, because the more negative the elasticity the more inelastic

    the demand for water and demand for bottled water should be more inelastic given it

    costs more per gallon of water.

    d. The elasticities are reasonable, because the more negative the elasticity the more elastic

    the demand for water and demand for bottled water should be more inelastic given it

    costs more per gallon of water.

    e. Both elasticities are inelastic; therefore, the elasticites are reasonable with tap water being

    more inelastic because tap water is required to live.

    3. Stage II of production begins where

    a. MPP is equal to zero.

    b. TPP is maximized.

    c. MPP is maximized.

    d. APP equals TPP.

    e. APP equals MPP.

  • 4. In 2010, approximately what percentage of each dollar spent on food goes to the farmers

    and ranchers?

    a. 5

    b. 15

    c. 20

    d. 25

    e. 20

    5. More than 170,000 small businesses closed between 2008 and 2010 according to U.S.

    Census Bureau data. Many of these businesses closed because of decreasing prices for their

    products. Which statement best describe this situation?

    a. Small businesses were unable to cover their variable costs and their fixed costs, so they

    closed price was at or below their breakeven price.

    b. Small businesses were unable to cover their variable costs but they were able to cover

    their fixed costs, so they closed price was below the breakeven price.

    c. The demand for products from small business is elastic; therefore, changing price does

    not matter.

    d. Small businesses were unable to cover their variable costs and their fixed costs, so they

    closed price was below the shutdown price.

    e. Small businesses are plagued with poor management and competition from large business

    and will always fail.

    6. You have started a new business that buys corn from farmers and creates a new stronger

    chip for salsa dipping for marketing (sell) to local restaurants. This is an example of

    a. the marketing bill in agriculture.

    b. value added in agriculture.

    c. consumer expenditures.

    d. niche farming.

    e. increasing the farm value of the marketing bill.

    7. The marginal rate of substitution between Chips Ahoy

    and Oreo cookies for the indifference curve with the

    highest utility level in the following graph is

    _________.

    a. -4

    b. -2

    c. -0.25

    d. -0.5

    e. -1.0

  • 8. Assume the marginal rate of substitution is of Chips Ahoy for Oreo cookies is -3. This

    means that the consumer

    a. indifference curves follow the law of diminishing marginal utility for Oreos but not for

    Chips Ahoy.

    b. is willing to give up three bags of Oreos for one bag of Chips Ahoy to obtain a higher

    level of utility.

    c. is willing to give up one bag of Oreos for three bags of Chips Ahoy to obtain a higher

    level of utility.

    d. is willing to give up three bags of Oreos for one bag of Chips Ahoy to obtain the same

    level of utility.

    e. is willing to give up one bag of Oreos for three bags of Chips Ahoy to obtain the same

    level of utility.

    9. Assuming the prices of cookies are $2.5 / bag

    for Oreos and $4.0 / bag for Chips Ahoy,

    which of the following yearly income

    constraints represents having $100 to spend

    on cookies for the year?

    a. A

    b. B

    c. C

    d. More information is necessary

    e. Indifference curves must be included to

    find the consumer equilibrium point.

    10. The U.S. progressive income tax system (higher your income the larger the tax rate) is based

    on the idea that the last dollar earned is worth more to a person making $10 / hour than a

    multimillionaire. The economic principle this tax system is based on is

    a. negative sloped indifference curves.

    b. marginal utility.

    c. law of diminishing marginal utility.

    d. law of demand.

    e. marginal rate of substitution.

    11. The profit maximizing point for a producer is

    a. where the marginal utility for input A divided by the price of input A equals the marginal

    utility of input B divided by the price of good B, that is . b. where the indifference curves intersect the budget constraint.

    c. at the breakeven price.

    d. where marginal revenue equals marginal cost, MR = MC.

    e. where total costs are minimized.

  • 12. According the U.S. Energy Information Administration, the national average retail price for

    gasoline was $3.36 / gallon and 8.52 million barrels of gasoline where sold for the week of

    12/28/12, however for the week of 1/11/13 the national average price was $3.43 / gallon and

    8.3 million barrels were sold per day. This is an example of

    a. big oil companies raising the price as students travel back to college.

    b. a decrease in the supply of oil because of weather conditions.

    c. a change in demand.

    d. a change in quantity demanded.

    e. a change in both demand and quantity demanded.

    13. The U.S. in 2010 passed rules to increase the corporate average fuel economy for

    automobiles and light duty trucks to 55 miles per gallon by 2025. Assuming everything else

    is constant, this new rule

    a. will lower the profits of oil companies.

    b. will decrease the supply of oil.

    c. represents a change in demand.

    d. represents a change in quantity demanded.

    e. represents a change in both demand and quantity demanded.

    14. __________ represents the costs that must be paid regardless of the level of production.

    a. Taxes

    b. Fixed costs

    c. Variable costs

    d. Marginal costs

    e. Opportunity or your average costs

    15. Texas Almost Best Potato Chips supplies a specialty corn chip in such a way that if the price

    of chips increases by 10% they are willing to supply 15% more chips. Their supply could

    best be described as

    a. elastic.

    b. inelastic.

    c. unitary.

    d. normal Good.

    e. necessity Good.

  • 16. Which of the following statements best illustrates the concept of consumer surplus

    associated with coffee?

    a. The government steps into the market and lowers the market price by $0.50 / pound.

    b. You enter Starbucks with $2.50 to purchase a grande coffee, but because of the special

    today you have to only pay $2.

    c. Recent government statistics show coffee drinks may life longer because of certain

    antioxidants in coffee.

    d. The market for coffee is such that the quantity demanded equals quantity supplied.

    e. An importer of coffee is not willing to $1.20 / pound for coffee but is will to pay $1.10

    per pound.

    17. At a price of $2 / unit, the quantity sold is 40 units, whereas, at a price of $6 /unit only 24

    units are sold. What is the own-price elastic for this good?

    a. -1.0

    b. -2.0

    c. 2.0

    d. 0.5

    e. -0.5

    18. In Britain, a restaurant finds it can sell 150 fish and chips dinners at a price of 3.50 and 200

    dinners at a of 3.00. At a price of 2.5, how many dinners would you except the restaurant

    to sell?

    a. 50

    b. 75

    c. 100

    d. 200

    e. 300

    19. Which statement best describes the graph?

    a. A new variety of corn has been developed that

    increases yields per acre.

    b. New research suggests that eating corn on the cob

    should be part of a healthy diet.

    c. The ethanol craze has increased the price of corn.

    d. A new study shows people are eating less corn

    because of an aflatoxin scare.

    e. Because of the drought in the Midwest, the

    production of corn decreased in 2012.

  • 20. At his current consumption level, Johns marginal utility for consuming a cheeseburger is 10

    units, and the price is $5. His marginal utility for consuming a taco is 8 units and the price

    is $2. Which of the following best describes Johns situation?

    a. John is maximizing his utility at this point.

    b. John is not maximizing his utility, he needs to eat more tacos and less cheeseburgers.

    c. John is not maximizing his utility, he needs to eat more cheeseburgers and less tacos.

    d. John needs to eat more of both

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