Deck 22: Agriculture: Economics and Policy

Question 1

The Food, Conservation, and Energy Act of 2008 provided three types of agricultural subsidies: direct payments, countercyclical payments, and marketing loans.

Answer 1

True

Question 2

Agriculture is overcrowded because of absolute and relative increases in the size of farm employment.

Answer 2

False

Question 3

If prices received by farmers decline and prices paid by farmers increase, the parity ratio will decline.

Answer 3

True

Question 4

Farmers typically sell their products in highly competitive markets and buy in imperfectly competitive markets.

Question 5

The Agricultural Act of 2014 expanded the direct payments, countercyclical payments, and marketing loans provided by the Food, Conservation, and Energy Act of 2008.

Question 6

The increasing relative importance of agricultural exports has increased the instability of the demand for U.S. farm products.

Question 7

The principal beneficiaries of government agricultural aid have been the very low-income farmers.

Question 8

The price elasticity of demand for most agricultural products is relatively low.

Question 9

Environmentalists generally support price supports because these subsidies motivate additional farm production.

Question 10

An increase in the supply of farm products relative to the demand for them tends to cause farm incomes to decline.

Question 11

Increases in incomes usually result in more than proportionate increases in the demand for agricultural products in a growing economy.

Question 12

About 10 percent of the U.S. labor force is in agriculture.

Question 13

The use of price-support programs in agriculture has hastened the exodus of resources from agriculture.

Question 14

The concept of parity has provided a rationale for government price supports for farm products.

Question 15

The federal government has not paid subsidies to farmers since passage of the Freedom to Farm Act in 1996.

Question 16

The Agricultural Act of 2014 created two new crop insurance programs, agricultural risk coverage and price loss coverage.

Question 17

If the demand for agricultural products is inelastic, a relatively small increase in supply will cause farm prices and incomes to decline.

Question 18

Agricultural risk coverage guarantees payments to farmers when the price of their crop falls below a specific value.

Question 19

Due to high fixed costs relative to variable costs in farming, farm production is quite sensitive to price changes in the short run.

Question 20

The Agricultural Act of 2018 ended the crop insurance programs created by the Agricultural Act of 2014.

Question 21

As a nation's average household income rises, the percentage of household income that goes to food expenditures also increases.

Question 22

The percentage of total employment in the U.S. that is accounted for by farms has been declining in the last six decades or so, but the absolute number of farm employment has actually risen slightly over those decades.

Question 23

Public policy has been ineffective in alleviating the resource misallocation problem in American agriculture.

Question 24

The parity ratio initially stood at 0.5. Then after several years, the prices received by farmers doubled while the prices they paid tripled. This will bring the parity ratio to

A)0.25.
B)0.33.
C)0.75.
D)0.80.

Question 25

Price support programs for agricultural products tend to cause shortages of these products.

Question 26

The farm price-support programs hurt consumers of the farm products, and moreover, the burden tends to be disproportionately heavier on the low-income consumers.

Question 27

Domestic farm subsidies improve world trade and contribute to greater efficiency in the international allocation of agricultural resources.

Question 28

Technological advances have occurred throughout the history of agriculture, resulting in higher productivity but lower incomes to farmers.

Question 29

The Freedom to Farm Act of 1996 aimed to eliminate agricultural price supports and acreage allotments for many crops.

Question 30

A parity ratio of 1.2 in year A means that prices

A)received in year A could buy 120 percent as much as prices received in the base period.
B)received in the base period could buy 120 percent as much as prices received in year A.
C)received in year A had risen by 120 percent over the prices received in the base period.
D)paid by farmers in year A had risen by 120 percent over the prices paid in the base period.

Question 31

Agricultural price-support programs result in consumers paying lower prices for the product.

Question 32

The Food, Conservation, and Energy Act of 2008 provided farm subsidies in the form of direct payments, countercyclical payments, and marketing loans to farmers.

Question 33

An example of the special interest effect is a farm program from which a large group receives small benefits at the expense of a smaller group who individually suffer large losses.

Question 34

If the parity ratio goes from 1 to 0.8, it means that the prices received by farmers had

A)fallen by 20 percent relative to the prices they paid.
B)fallen by 25 percent relative to the prices they paid.
C)risen by 20 percent relative to the prices they paid.
D)risen by 25 percent relative to the prices they paid.

Question 35

The movement to eliminate agricultural subsidies in the U.S. and make farmers rely more on market forces, starting with the Farm Act of 1996, continues to this day.

Question 36

The 2014 Agriculture Act in the U.S. eliminated farm subsidies so as to encourage farmers to move their resources to nonfarming production activities.

Question 37

The price and income support programs for agriculture have given the most benefit to those farmers with the most need for the government assistance.

Question 38

If in a certain year the indices of prices received and paid by farmers were 125 and 160, respectively, the parity ratio (in percentage terms)would be approximately

A)128.
B)78.
C)65.
D)35.

Question 39

Farmers, though a small proportion of the population, can impose a large total cost to taxpayers in the form of agricultural subsidies because the average cost imposed on each individual taxpayer is small and not given much attention by a large number of taxpayers.

Question 40

The parity concept of agricultural policy suggests that farmers should obtain a constant ratio of the prices they receive for their farm products and the prices they pay for goods and services in general.

Question 41

Refer to the table. If government adopts a price support program that sets the price at $7, then the total amount that government will pay to farmers of this product is

A)$980.
B)$560.
C)$180.
D)$1,540.

Question 42

The demand for agricultural products

A)has a price elasticity coefficient of about 0.20 to 0.25.
B)is elastic with respect to income but inelastic with respect to price.
C)has been decreasing about 8 percent per year.
D)has been rising more rapidly than the national income.

Question 43

The demand for agricultural products is

A)relatively elastic with respect to price.
B)relatively inelastic with respect to price.
C)relatively elastic with respect to income.
D)downsloping to the individual farmer but perfectly elastic to farmers as a group.

Question 44

Farm share of U.S. GDP has

A)declined from about 12 percent in 1950 to 1 percent today.
B)declined from about 12 percent in 1950 to 7 percent today.
C)declined from about 7 percent in 1950 to 1 percent today.
D)remained relatively stable over the past 50 years.

Question 45

Refer to the diagram. If farmers produce a normal crop of Qₙ , their gross income

A)will be 0 Pₚ PNQₙ .
B)will be 0 Pₙ NQₙ .
C)will be Pₚ × Qₙ .
D)cannot be determined.

Question 46

Refer to the table. If government adopts a price support program that sets the price at $9, then there will be a

A)shortage of 100 bushels.
B)surplus of 100 bushels.
C)surplus of 120 bushels.
D)surplus of 160 bushels.

Question 47

Refer to the table. In a competitive market for this agricultural product, the equilibrium price and output level will be

A)$5 and 140 bushels.
B)$6 and 180 bushels.
C)$6 and 140 bushels.
D)$7 and 220 bushels.

Question 48

Refer to the table. If government adopts a price support program that sets the price at $9, then the total amount that private buyers would pay for this agricultural product is

A)$300.
B)$900.
C)$1,800.
D)$2,700.

Question 49

The price of a certain farm product was $2.00 in the base period when the parity ratio was 100. If the index of prices paid by farmers is now at 130, then the parity price of this farm product today should be

A)1.40.
B)2.60.
C)2.30.
D)1.70.

Question 50

The demand for most agricultural products is

A)elastic with respect to price but inelastic with respect to income.
B)inelastic with respect to price but elastic with respect to income.
C)elastic with respect to both price and income.
D)inelastic with respect to both price and income.

Question 51

What percentage of their spending do U.S. consumers allocate to food purchases?

A)1 percent.
B)7 percent.
C)10 percent.
D)13 percent.

Question 52

In the United States, "farm products" are generally produced in more ___________ markets, while "food products" tend to be sold in markets that are more ____________.

A)monopolistic; competitive
B)competitive; oligopolistic
C)oligopolistic; competitive
D)oligopolistic; monopolistic

Question 53

If the demand for an agricultural product is inelastic, a bumper crop will

A)raise price and decrease total revenues.
B)raise price and increase total revenues.
C)lower price and decrease total revenues.
D)lower price and increase total revenues.

Question 54

Refer to the diagram. If output changes from a poor crop, Qₚ , to a bumper crop, Qᵦ ,

A)farm incomes will decrease.
B)farm incomes will increase.
C)price and quantity will both increase.
D)farm incomes may either rise or fall.

Question 55

Which of the following statements best describes the demand for agricultural commodities?

A)It takes a small decline in price to induce a large increase in the amount of agricultural products demanded.
B)The marginal utility of additional units of agricultural output diminishes very rapidly.
C)Small increases in income cause demand to increase by a proportionately larger amount.
D)When price declines, the resulting substitution effect is very large.

Question 56

The demand for agricultural products rises less rapidly than income. This means that the demand for agricultural products is

A)income inelastic.
B)income elastic.
C)price inelastic.
D)price elastic.

Question 57

Which of the following best describes the short-run problem faced by farms?

A)New technology has increased the productivity of farmers and therefore resulted in declining farm prices and low farm incomes.
B)The highly inelastic nature of agricultural demand, together with fluctuations in exports of farm goods, has caused small year-to-year fluctuations in farm output to result in highly unstable farm incomes.
C)The supply of farm products has increased relative to the demand for them, and because demand is inelastic, prices of farm output and farm income have therefore declined.
D)The demand for farm products has increased relative to their supply, but the elastic nature of agricultural demand has caused these shifts to result in declining farm incomes.

Question 58

Which of the following would, other things equal, increase the demand for U.S. farm products?

A)poorer crops abroad
B)appreciation of the U.S. dollar
C)deteriorating trade relations with China and Russia
D)increases in foreign tariffs on imported farm products

Question 59

Refer to the diagram. If farmers produce a bumper crop of Qᵦ , their gross income

A)will be 0 Pₚ PBQᵦ .
B)will be 0 Pᵦ BQᵦ .
C)will be Pᵦ × Qₙ .
D)cannot be determined.

Question 60

Which of the following would, other things equal, reduce the demand for U.S. farm products?

A)poorer crops abroad
B)strong economic growth abroad
C)improved trade relations with China and Russia
D)appreciation of the U.S. dollar

Question 61

Which diagram best represents the problem faced by farms in the short run?

A)A
B)B
C)C
D)D

Question 62

The problem faced by farms in the long run as portrayed in the diagram would involve price and quantity changes from

A)P₂ to P₃ and Q₁ to Q₄.
B)P₁ to P₄ and Q₁ to Q₄.
C)P₂ to P₁ and Q₁ to Q₂.
D)P₄ to P₁ and Q₄ to Q₁.

Question 63

Measured in terms of farm employment and the number of farms, agriculture has been

A)a declining industry.
B)an expanding industry.
C)a stable industry.
D)a volatile industry.

Question 64

Which of the following best describes the main problem faced by farms in the long run?

A)Lagging technology has decreased the productivity of farmers and therefore resulted in low farm prices and incomes.
B)The highly inelastic nature of agricultural demand has caused small year-to-year fluctuations in farm output to result in highly unstable farm incomes.
C)The supply of farm products has increased relative to the demand for them, and, because demand is inelastic, farm prices and incomes have therefore declined.
D)The demand for farm products has increased relative to their supply, but the highly elastic nature of agricultural demand has caused these shifts to result in declining farm incomes.

Question 65

Over the past several decades, farm employment has

A)grown absolutely but declined as a percentage of total employment.
B)declined both absolutely and as a percentage of total employment.
C)increased both absolutely and as a percentage of total employment.
D)declined absolutely but increased as a percentage of total employment.

Question 66

Which of the following is not characteristic of U.S. agriculture?

A)Productivity has been increasing more slowly in agriculture than in the rest of the economy.
B)The demand for agricultural commodities increases less than proportionately to increases in income.
C)Resources in agriculture are relatively immobile.
D)Demand is inelastic with respect to price.

Question 67

A bumper crop of farm products causes

A)only a slight decline in the price of farm products because the demand for farm products is income inelastic.
B)a large decline in the price of farm products because the demand for farm products is price inelastic.
C)only a slight decline in the price of farm products because the demand for farm products is income elastic.
D)a large decline in the price of farm products because the demand for farm products is price elastic.

Question 68

Which of the diagrams best describes the long-run path of real (inflation-adjusted)farm prices?

A)A
B)B
C)C
D)D

Question 69

An extraordinarily small crop of farm products due to drought causes

A)a large increase in the price of farm products because the demand for farm products is price inelastic.
B)only a slight increase in the price of farm products because the demand for farm products is income elastic.
C)only a slight increase in the price of farm products because the demand for farm products is income inelastic.
D)a large increase in the price of farm products because the demand for farm products is price elastic.

Question 70

Over time, technological change has

A)reduced both the price elasticity and income elasticity of the demand for farm products.
B)reduced the minimum efficient scale of production in agriculture and increased the prices of farm products.
C)increased both price elasticity and income elasticity of the demand for farm products.
D)increased the minimum efficient scale of production in agriculture and reduced the prices of farm products.

Question 71

Which of the following is correct?

A)The rapid expansion of foreign incomes will reduce U.S. agricultural exports.
B)A decrease in the international value of the dollar will reduce U.S. agricultural exports.
C)An increase in the international value of the dollar will reduce U.S. agricultural exports.
D)Changes in the international value of the dollar have no effect on U.S. agricultural exports.

Question 72

Which of the following countries has the smallest percentage of its labor force employed in agriculture?

A)Madagascar
B)France
C)Brazil
D)United States

Question 73

In 2017, farm employment constituted about

A)15.8 percent of total employment.
B)1.2 percent of total employment.
C)1.6 percent of total employment.
D)2.6 percent of total employment.

Question 74

Since 1950, farm productivity has

A)advanced twice as fast as in nonfarm sectors of the economy.
B)lagged behind productivity advances in the nonfarm economy.
C)almost exactly matched productivity increases in the rest of the economy.
D)doubled.

Question 75

Which of the following statements about U.S. agriculture is true as it relates to the past several decades?

A)The demand for farm products has declined, the supply of farm products has increased, and the price of farm products has declined.
B)The demand for farm products has become both more income elastic and more price elastic.
C)Minimum efficient scale has increased, the prices of farm products have declined, and the number of farms has declined.
D)The prices of farm products have increased, minimum efficient scale has declined, and the supply of farm products has been stagnant.

Question 76

The growing importance of export demand for American agriculture has

A)reduced the international value of the dollar.
B)had no significant effect on the stability of the demand for farm products.
C)destabilized the total demand for farm products.
D)stabilized the total demand for farm products.

Question 77

Which of the following statements is correct?

A)The price support program hastened the exodus of resources from agriculture.
B)The main beneficiaries of government price support assistance were the very low income farmers.
C)If the demand for agricultural products is inelastic, a relatively small decrease in supply will increase gross farm incomes.
D)There is a misallocation of resources in rural America because of absolute and relative increases in the size of the farm population.

Question 78

One consequence of the long-run problem faced by farms has been a

A)rapid increase in the price of farm output.
B)massive exit of workers from agriculture to other sectors of the economy.
C)smaller average farm size.
D)reduction in U.S. exports of farm products.

Question 79

Which diagram best represents the problem faced by farms in the long run?

A)A
B)B
C)C
D)D

Question 80

Refer to the diagram. Which of the following supply and demand shifts portray the long-run problem that farms face?

A)S to S' and D to D'
B)S to S' and D' to D
C)S' to S and D' to D
D)S' to S and D to D'