Deck 21: Agriculture: Economics and Policy

Question 1

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.

Answer 1

lower price and decrease total revenues.

Question 2

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.

Answer 2

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.

Question 3

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

Answer 3

competitive;oligopolistic

Question 4

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 5

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 6

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 7

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 8

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

A) 1 percent.
B) 8 percent.
C) 13 percent.
D) 15 percent.

Question 9

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 10

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 11

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 12

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 13

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 14

Since 1950,U.S.farm exports have:

A) increased as a percentage of U.S.farm output.
B) declined as a percentage of U.S.farm output.
C) averaged about 10 percent of U.S.farm output.
D) averaged about 50 percent of U.S.farm output.

Question 15

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 16

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 17

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 18

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 19

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 20

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 21

If the prices paid by farmers increase and the prices received by farmers decrease,then the parity ratio:

A) will necessarily decrease.
B) will necessarily increase.
C) may either increase or decrease.
D) will be unaffected.

Question 22

Which of the following statements is correct?

A) Price supports may induce either an underallocation or an overallocation of resources to farm products.
B) Supported prices have no effect on the allocation of resources to farm products.
C) Supported prices induce an underallocation of resources to farm products.
D) Price supports induce an overallocation of resources to farm products.

Question 23

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 24

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 proportionate to increases in income.
C) Resources in agriculture are relatively immobile.
D) Demand is inelastic with respect to price.

Question 25

If in a certain year the indices of prices received and paid by farmers were 115 and 142 respectively,the parity ratio (in percentage terms)would be:

A) 123.
B) 81.
C) 69.
D) 27.

Question 26

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 27

The parity ratio:

A) compares worker productivity in the farm and nonfarm sectors.
B) is the ratio of per capita farm income to per capita nonfarm income.
C) is the ratio of prices received by farmers to prices paid by farmers.
D) is the ratio of prices paid by farmers to prices received by farmers.

Question 28

Which of the following arguments is not generally made to justify farm subsidies?

A) The "family farm" is an American institution that should be protected and nurtured.
B) Agribusiness firms need subsidies to achieve economies of scale.
C) Farmers sell their output in purely competitive markets but must buy inputs from imperfectly competitive firms.
D) Farmers cannot fully insure themselves against the risks unusual to farming,such as floods,droughts,and pests.

Question 29

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 30

Which of the following statements is correct?

A) The parity ratio has not exceeded 100 in the 20^th or 21^st century.
B) An increase in prices paid by farmers relative to prices received by farmers will increase the parity ratio.
C) The parity ratio has generally been greater than 100 in the past four decades.
D) The parity ratio has generally declined over the past five decades.

Question 31

Acreage allotment programs were designed to:

A) reduce the supply of agricultural products.
B) make the demand for farm products more price elastic.
C) bolster the demand for agricultural commodities.
D) accelerate the movement of human resources out of farming.

Question 32

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 33

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 34

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

A) China.
B) France.
C) Brazil.
D) United States.

Question 35

Currently (2009)farm employment is about:

A) 15.8 percent of total employment.
B) 9.4 percent of total employment.
C) 1.1 percent of total employment.
D) 1.8 percent of total employment.

Question 36

The misallocation of resources associated with price supports:

A) affects both domestic and foreign economies.
B) affects only foreign economies.
C) affects only the domestic economy.
D) is fully offset by reductions in food prices.

Question 37

If the prices received by farmers increased and the prices paid by farmers also increased,the parity ratio:

A) will necessarily be unchanged.
B) may either increase or decrease.
C) will necessarily increase.
D) will necessarily decline.

Question 38

Which of the following arguments for farm subsidies is most closely associated with the parity concept?

A) Although farmers produce necessities for the rest of us,they receive low incomes that are declining in real terms,and should therefore receive price and income support.
B) Farmers sell their output in purely competitive markets but must buy inputs from imperfectly competitive firms.
C) Farmers cannot fully insure themselves against the risks unusual to farming,such as floods,droughts,and pests.
D) The "family farm" is an American institution that should be protected and nurtured.

Question 39

Which of the following statements best describes the parity concept?

A) The prices of farm commodities should vary inversely with changes in the prices-paid index for farmers.
B) Because of productivity increases,farmers are entitled to the same real income for a smaller volume of output.
C) The money incomes of farmers should always be the same,regardless of increases or decreases in the prices of the products they buy.
D) The production of a given real output entitles the producer to the same real income over time.

Question 40

Historically,many aspects of U.S.farm policies had their origins in the:

A) Agricultural Extension Service Act.
B) Agricultural Adjustment Act.
C) Homestead Act.
D) Land Grant Act.

Question 41

Domestic price supports on,say,sugar:

A) generate trade barriers to reduce imports of foreign sugar.
B) increase world sugar prices.
C) keep the domestic price of sugar artificially low.
D) increase the earnings of foreign sugar producers.

Question 42

Farm programs such as those of the United States and the European Union:

A) encourage the United States and the European Union to use tariffs and quotas to restrict agricultural imports.
B) cause U.S.and EU farmers to produce less than domestic consumers want to purchase.
C) increase world market prices for agricultural products.
D) raise farm output in developing nations.

Question 43

Because government price supports cause surplus production,government policies have been designed to:

A) increase demand and decrease supply of farm products.
B) decrease demand and increase supply of farm products.
C) increase demand and increase supply of farm products.
D) decrease demand and decrease supply of farm products.

Question 44

The food-stamp program is designed to:

A) increase the supply of farm products.
B) decrease the supply of farm products.
C) increase the demand for farm products.
D) decrease the demand for farm products.

Question 45

The purpose of the Freedom to Farm Act of 1996 was to:

A) immediately end U.S.farm subsidies.
B) end 60 years of U.S.price supports for American grain crops.
C) eliminate U.S.tariffs and quotas on imported farm goods.
D) stabilize short-run crop prices.

Question 46

When critics of U.S.farm policy say that it treats symptoms rather than causes,they mean that the:

A) policy attempts to bolster low farm income,while the real problem is an overallocation of resources to agriculture.
B) policy deals with the overallocation of resources to agriculture,while the basic farm problem is low incomes.
C) policy attempts to bolster low farm incomes,while the real problem is an underallocation of resources to agriculture.
D) restriction of output in the short run may reduce productive capacity in agriculture in the long run.

Question 47

The Food,Conservation,and Energy Act of 2008:

A) ended 60 years of U.S.price supports for American grain crops.
B) restored the U.S.price support system (for currently grown crops)that was ended in the Freedom to Farm Act of 1996.
C) ended the "freedom to plant" approach of the Freedom to Farm Act of 1996 and restored acreage allotments.
D) maintained the "freedom to plant" and "direct-payment" features of the Freedom to Farm Act of 1996,and also provides countercyclical payments and marketing loans to assist farmers.

Question 48

Price supports:

A) decrease pollution because participants must practice organic farming.
B) neither increase nor decrease environmental pollution.
C) increase pollution because supports encourage the cultivation of marginal land and the use of more pesticides and fertilizers.
D) discourage rent-seeking activity.

Question 49

Import quotas on sugar may cost consumers $2 billion per year.But this quota goes unchallenged because the $10 average annual cost per person is so small that probably not one voter in 200 knows the quota exists.This statement describes:

A) the voting paradox.
B) the special-interest effect.
C) the median-voter model.
D) free-rider problem.

Question 50

An international agreement reached in 1994 by the world's trading nations provides for:

A) an increase in export subsidies on agricultural products.
B) an increase in agricultural price supports.
C) a reduction of tariffs on agricultural products.
D) an international research organization designed to discover nonfood uses of agricultural output.

Question 51

In 1994,the world's trading nations agreed to:

A) increase export subsidies to reduce world surpluses of farm products.
B) reduce agricultural subsidies and tariffs on agricultural imports.
C) eliminate all price supports for farm products.
D) create an international farm price support system to replace the price support systems of individual countries.

Question 52

Price supports in agriculture have been criticized because they:

A) have hastened the exodus of labor from agriculture.
B) subsidize consumers at the expense of farmers.
C) help large farmers more than small farmers.
D) create product shortages.

Question 53

Farm programs such as those of the United States and the European Union cause a misallocation of international agricultural resources primarily because:

A) they distort domestic and world agricultural prices.
B) they inhibit technological progress in agriculture.
C) production and trade occur on the basis of comparative advantage.
D) price supports are set below market-clearing levels.

Question 54

As applied to agriculture,the special-interest effect suggests that:

A) urban legislators support farm legislation in exchange for rural legislators supporting urban-oriented legislation.
B) a relatively small number of farmers receive large benefits at the expense of a much larger group of taxpayers who individually suffer small losses.
C) politicians support farm subsidies because most of the associated costs are hidden rather than explicit.
D) the size of farm subsidies should vary directly with a farmer's earned income.

Question 55

Irving Tiller exclusively grew wheat in each of the past three years.Under the Food,Conservation,and Energy Act of 2008,Tiller:

A) must grow wheat in the current year in order to receive direct payments from the federal government.
B) can grow whatever crop he wants to in the current year but will only receive direct payments from the federal government if the price of wheat falls below a targeted price.
C) can grow whatever crop he wants in the current year and will still receive direct payments from the federal government based on his previously grown wheat crops.
D) must grow something other than wheat to qualify for direct payments from the federal government.

Question 56

The Food for Peace program is designed to:

A) achieve 100 percent price parity for all farm products.
B) discover new uses for farm products through research and development.
C) take agricultural land out of the production of feed grains.
D) facilitate the distribution of surplus U.S.farm products in the developing countries.

Question 57

Farm groups spend considerable amounts of money to maintain and enlarge political support for farm subsidies.This illustrates:

A) coalitions.
B) rent-seeking activity.
C) the special-interest effect.
D) the voting paradox.

Question 58

If farm state legislators support the food-stamp program to aid the urban poor and urban state legislators in turn support farm subsidies,this is an example of:

A) the special-interest effect.
B) political logrolling.
C) the paradox of voting.
D) cost-benefit analysis.

Question 59

The U.S.price support program,which guaranteed prices for currently grown crops:

A) ended with the passage of the Freedom to Farm Act of 1996.
B) began with the Grain Planting Act of 1914.
C) remains the core of U.S.farm policy.
D) was restored in full and expanded by the Food,Conservation,and Energy Act of 2008.

Question 60

Farm programs such as those of the United States and the European Union:

A) are consistent with free world trade in agricultural products.
B) cause a misallocation of agricultural resources internationally.
C) cause the United States and the European Union to underproduce,while other nations overproduce,farm products.
D) raise productivity in developing nations.

Question 61

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

Question 62

U.S.exports of farm products have generally declined as a percentage of U.S.farm output over the past half-century.

Question 63

(Consider This)Which of the following methods is used by farmers to "hedge" against short-run price and output fluctuations?

A) Securing prices for their output in the futures market.
B) Purchasing crop revenue insurance to insure against natural disasters.
C) Leasing land to other farmers in return for stable rent payments.
D) All of these risk-management techniques are used.

Question 64

Johnny Deer exclusively grew corn in each of the past three years.Under the Food,Conservation,and Energy Act of 2008,Deer:

A) must grow corn in the current year in order to receive direct payments from the federal government.
B) can grow whatever crop he wants to in the current year but will only receive direct payments from the federal government if the price of corn falls below a targeted price.
C) will receive countercyclical payments if the price of corn falls below a targeted price,even though he does not grow corn in the current year.
D) must grow something other than corn to qualify for direct payments from the federal government.

Question 65

Under the Food,Conservation,and Energy Act of 2008,subsidies to farmers based on gaps between actual prices of crops and targeted prices are called:

A) direct payments.
B) price supports.
C) countercyclical payments.
D) price gap set-asides.

Question 66

(Last Word)The U.S.sugar program:

A) decreases the domestic price of sugar.
B) requires import quotas or tariffs on foreign sugar.
C) increases the export earnings of other sugar-producing countries.
D) aids developing countries that produce sugar.

Question 67

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

Question 68

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

Question 69

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

Question 70

(Last Word)The U.S.sugar price support program has:

A) cost U.S.consumers much more than it has benefited U.S.sugar producers.
B) cost U.S.consumers much less than it has benefited U.S.sugar producers.
C) reduced the price of sugar to U.S.consumers.
D) increased sugar imports as a percentage of U.S.sugar consumption.

Question 71

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

Question 72

(Last Word)The U.S.sugar program has:

A) improved the world allocation of agricultural resources.
B) caused the world price of sugar to rise above its domestic price.
C) increased domestic sugar production.
D) lowered the incomes of U.S.sugar growers.

Question 73

(Consider This)Which of the following has been an effect of the U.S.government's ethanol program?

A) Prices for crops such as soybeans and sorghum have fallen dramatically.
B) Prices for beef,pork,and chicken have risen.
C) Water use has declined as corn is a less water-intensive crop.
D) All of these effects have resulted from the ethanol program.

Question 74

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

Question 75

The Food,Conservation,and Energy Act of 2008 does not address the fundamental problem of agricultural subsidies,which is that those subsidies:

A) reduce work incentive for farmers,thus reducing agricultural production.
B) slow the exodus of resources from agriculture,increase production of agricultural products,and reduce crop prices and market incomes.
C) increase the exodus of resources from agriculture and reduce investments by farmers in land and equipment.
D) are based on past agricultural production and not on current agricultural production.

Question 76

(Consider This)Which of the following methods is commonly used by farmers to "smooth" income over time?

A) Producing only one crop to benefit from specialization.
B) Renting land from other farmers to increase production.
C) Entering contracts with buyers of their farm output to assure themselves of a fixed price.
D) All of these risk-management techniques are used to hedge against short-run price and output fluctuations.

Question 77

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

Question 78

Ward Planter exclusively grew soybeans in each of the past three years and currently participates in the marketing loan program of the Food,Conservation,and Energy Act of 2008.If the "crop price" of soybeans at harvest is less than the pre-harvest "loan price," Planter can:

A) sell his crop in the market and receive the difference between the crop price and loan price as a direct payment from the federal government.
B) take a "crop credit" based on the difference between the crop price and the loan price and use the credit to reduce federal income taxes owed.
C) receive an "emergency loan" that can be paid back over the following five years.
D) forfeit the harvest to the lender and be free of the loan,thus receiving a subsidy because the proceeds from the loan exceed the revenues from the sale of the crop in the market.

Question 79

Which of the following is a feature of farm policy present in the Food,Conservation,and Energy Act of 2008 that was not part of the Freedom to Farm Act of 1996?

A) Direct payments (direct subsidies)based on crops currently grown.
B) Countercyclical payments.
C) Farm buyouts by government.
D) Acreage allotments (restrictions on planting).

Question 80

(Consider This)In part as a result of the U.S.government's ethanol program,between 2005 and 2012 the inflation-adjusted price of a bushel of corn:

A) tripled.
B) rose 200 percent.
C) fell 20 percent.
D) collapsed to only 5 percent of its pre-2005 level.