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c.
spend at least 10 percent of their budgets to advertise their products.
d.
b and c
e.
a and c
106. Studies shows that income elasticity of demand for food is
a.
less than 1, but greater than 0.
b.
more than 1, but less than 2.
c.
less than 0.
d.
more than 2.
107. If income elasticity of demand for food is 1.55 it follows that
a.
a 10 percent rise in the price of food lowers the quantity demanded of food by 15.5 percent.
b.
if income rises by 10 percent, consumption of food rises by 15.5 percent.
c.
if income rises by 10 percent, consumption of food falls by 15.5 percent.
d.
a 1 percent rise in the price of food decreases the quantity demanded of food by 1.55 percent.
e.
none of the above
108. If real income rises in the economy and, at the same time, productivity in the agriculture sector rises, too, then it
follows that the demand for food will
a.
rise (assuming that income elasticity of demand for food is greater than 1) and the supply of food will remain
constant.
b.
rise (assuming that income elasticity of demand for food is greater than 0) and the supply of food will increase,
too.
c.
fall (assuming that income elasticity of demand for food is greater than 1) and the supply of food will fall, too.
d.
fall (assuming that income elasticity of demand for food is equal to 1) and the supply of food will rise.
e.
none of the above
109. If market demand is inelastic and supply is subject to severe shifts from season to season, it follows that
a.
price changes are likely to be small.
b.
price changes are likely to be large.
c.
total revenue is likely to be constant over time.
d.
total revenue is likely to be highly volatile.
e.
b and d
110. Demand for a food item increases by more than the supply of the food item. One thing for certain is that
a.
the price of the food item rises.
b.
income elasticity of demand (for the food item) is greater than 1.
c.
the supply curve is price elastic.
d.
real income rises as a result.
e.
none of the above
111. Supply of a food item increases by more than the demand for the food item increases. One thing for certain is that
a.
the price of the food item rises.
b.
income elasticity of demand is less than 0.
c.
the supply curve is price inelastic.
d.
real income falls as a result.
e.
none of the above
112. Bad weather is likely to
a.
raise the total revenue farmers receive for their foodstuffs, assuming that demand for their products is inelastic.
b.
lower the total revenue farmers receive for their foodstuffs, assuming that demand for their products is elastic.
c.
leave the total revenue farmers receive for their foodstuffs unchanged.
d.
change the income elasticity of demand for food.
e.
c and d
113. The change in the price of a foodstuff will be greater,
a.
the smaller the change in the supply of the foodstuff.
b.
the greater the change in the supply of the foodstuff and the more inelastic the demand curve for the foodstuff.
c.
the lesser the change in the supply of the foodstuff and the more inelastic the demand curve for the foodstuff.
d.
the greater the change in the supply of the foodstuff and the more elastic the demand curve for the foodstuff.
e.
the lesser the change in the supply of the foodstuff and the more elastic the demand curve for the foodstuff.
114. The price of a foodstuff falls and the total revenue (received by farmers for selling the foodstuff) rises. What could
explain this?
a.
Increased supply and elastic demand.
b.
Real income rises and the foodstuff is an inferior good.
c.
Real income rises and the foodstuff is a normal good.
d.
Increased supply and inelastic demand.
e.
none of the above
115. Farmers can insure themselves against adverse price swings through the __________ market.
a.
bond
b.
stock
c.
futures
d.
food
e.
none of the above
116. Which of the following statements is false?
a.
There are fewer farms in this country today than there were earlier in this century.
b.
In 2000, there were 8 million farms in the United States.
c.
Bad weather reduces the supply of foodstuffs and leads to greater farmer total revenue, assuming demand for
the foodstuffs is inelastic.
d.
b and c
117. If the demand for foodstuffs is inelastic, which of the following positions would be most beneficial to Farmer Jones?
a.
Bad weather for Jones and good weather for all other farmers.
b.
Bad weather for all farmers except Jones (who witnesses good weather).
c.
Bad weather for all farmers.
d.
Good weather for all farmers.
e.
There is not enough information to answer the question.
118. Here are four positions that Farmer Gomez can be in: (1) bad weather for Gomez and good weather for all other
farmers; (2) bad weather for all farmers except Gomez (who witnesses good weather); (3) bad weather for all farmers; (4)
good weather for all farmers. Assuming the demand for foodstuffs is inelastic, Farmer Gomez would probably rank these
four positions, from best for him to worst for him, the following way:
a.
1,2,3,4.
b.
2,1,3,4.
c.
2,3,4,1.
d.
4,3,2,1.
e.
3,4,1,2.
119. An agricultural price support
a.
will create a surplus in the relevant market, assuming the price support is above equilibrium price.
b.
will create a shortage in the relevant market, assuming the price support is above equilibrium price.
c.
is an example of a price floor.
d.
will lead to greater total revenue for farmers if demand (for the product) farmers sell is inelastic between the
equilibrium price and the price support (and assuming the price support is above equilibrium price).
e.
a, c, and d
120. One of the consequences of an agricultural price support program is
a.
a surplus.
b.
more exchanges made at the price support.
c.
lower prices paid by consumers.
d.
lower taxes for taxpayers.
e.
a and c
121. As a result of an agricultural price support,
a.
quantity demanded is greater than quantity supplied.
b.
quantity supplied is greater than quantity demanded.
c.
fewer exchanges are made.
d.
a and c
e.
b and c
122. Which of the following directly (as opposed to indirectly) raises the price of agricultural products?
a.
marketing quota system
b.
acreage allotment program
c.
paying farmers not to produce
d.
price supports
e.
all of the above
123. Which of the following statements is true?
a.
In a price support program, consumers end up paying the price support.
b.
In a target price system, consumers end up paying the target price.
c.
In a target price system, the per-unit deficiency payment is equal to the difference between the quantity
demanded at the market price and the quantity supplied at the market price.
d.
Acreage allotment programs directly (as opposed to indirectly) raise agricultural product prices.
e.
b and d
124. A farmer has 1,000 acres on which he has previously grown corn. His yield per acre is 100 bushels of corn. If the
corn payment rate is $0.43 a bushel, his production flexibility contract payment equals
a.
$39,600.
b.
$43,000.
c.
$36,550.
d.
$12,345.
e.
none of the above
125. A farmer has 500 acres on which he has previously grown corn. His yield per acre is 100 bushels of corn. If his
production flexibility contract payment is $21,250, then what is the corn payment rate?
a.
$0.45
b.
$0.67
c.
$0.50
d.
$0.10
e.
There is not enough information to answer the question.
126. The formula for determining the production flexibility contract payment is:
a.
contract acreage x 0.75 x yield per acre x crop payment rate.
b.
contract acreage x 0.85 x yield per acre x $1.
c.
contract acreage x 0.85 x yield per acre x crop payment rate.
d.
contract acreage - (0.85 x contract acreage) x yield per acre x crop payment rate.
e.
There is no formula for the production flexibility contract payment. There is only a flat fee that changes
annually.
127. Which of the following statements is true?
a.
There are more farms today than at the beginning of the 20th century.
b.
An individual farmer prefers good weather to bad weather, but farmers as a group may prefer bad weather to
good weather, especially if the demand for their products is inelastic.
c.
Income elasticity of demand measures the responsiveness of a change in quantity supplied to changes in
income.
d.
a and b
e.
b and c
Exhibit 39-9
128. Refer to Exhibit 39-9. Under a target price system, with the target price set at P1, the price at which consumers will
buy the food item is
a.
P1.
b.
P2.
c.
P3.
d.
P4.
e.
There is not enough information to answer the question.
129. Refer to Exhibit 39-9. Under a target price system, with the target price set at P1, the per-unit deficiency payment
will be:
a.
P2 - P4.
b.
P1 - P3.
c.
P2 - P3.
d.
P1 - P2.
e.
none of the above
130. Refer to Exhibit 39-9. Under a price support program, with the price support set at P1, consumers will end up paying
a price of
a.
P1.
b.
P2.
c.
P3.
d.
P4.
e.
There is not enough information to answer the question.
131. At the beginning of the 20th century one farmer in the U.S. produced enough to feed ____________ people, and at
the end of the century, one farmer produced enough to feed ____________ people.
a.
20; 40
b.
7; 15
c.
12; 42
d.
8; 35
132. Under a target price system, the government can adjust the deficiency payment paid to a farmer by deciding to pay
some percentage of the difference between the target price and the market price.
a.
True
b.
False
133. Agriculture productivity has increased more rapidly in the U.S. than has nonagriculture productivity.
a.
True
b.
False
134. In 1930, agriculture accounted for 10 percent of the U.S. GDP; in 2000, it accounted for only 5 percent of the GDP.
a.
True
b.
False
135. For farmers as a group, increased productivity can lead to lower incomes.
a.
True
b.
False
136. Increased productivity in agriculture leads to lower prices for consumers and higher revenues for farmers.
a.
True
b.
False
137. When productivity increases in the production of agricultural products, the supply curve for agricultural products
shifts rightward.
a.
True
b.
False
138. In the U.S., studies have shown that as real incomes have risen, per capita demand for food has been increasing by a
much lower percentage.
a.
True
b.
False
139. The combination of low income elasticity of demand for food and high agricultural productivity leads to the demand
for food increasing and the supply of food increasing even more, which has lead to rising prices of food.
a.
True
b.
False
140. The price elasticity of demand for many agricultural products is (absolute value) less than 1, meaning that these
products are inelastic in demand.
a.
True
b.
False
141. Unlike in the 1930’s, farmers today can insure themselves against price swings that would impact them adversely
through the futures market.
a.
True
b.
False
142. Farmers as a group generally prefer bad weather to good weather because bad weather shifts the demand curve for
their product rightward and raises the price of their product.
a.
True
b.
False
143. An agricultural price support is an example of a price ceiling.
a.
True
b.
False
144. When the government implements an agricultural price support (above the equilibrium price), a surplus results and
the government buys the surplus at the support price.
a.
True
b.
False
145. In 2014, the federal government disbanded the practices of fixed direct payments and countercyclical payments to
farmers.
a.
True
b.
False
146. The major way that the government supports crop prices is by granting nonrecourse loans to farmers.
a.
True
b.
False
147. Explain how nonrecourse loans operate and how they help to support crop prices.
148. Explain how the combination of major changes in the weather and price inelasticity of demand for a food item can
lead to wide fluctuations in a farmer’s income from year to year.
149. Explain how the purchase of futures contracts can help to insure a farmer against adverse swings in the prices of the
crops that he grows.
