Farm Market Forces

Chapter 14: The Farm Problem

Multiple Choice Questions
DESTABILIZING FORCES
1. If an agricultural market is perfectly competitive, then:
A) A farmer is a price taker.
C) The market demand curve is perfectly elastic.
B) A farmer uses price discrimination.
D) Each firm's demand curve is perfectly inelastic.
Answer: A Type: Analytical Page: 296
2. Individual farmers cannot influence market prices because:

A) They are price makers.
B) They face downward-sloping demand curves for the firm.
C) They have no market power.
D) All of the above.
Answer: C Type: Definition Page: 296
3. The horizontal demand curve faced by a farmer indicates that:

A) The law of demand does not apply to the agricultural market.
B) The farmer has no market power.
C) Marginal revenue is below the demand curve.
D) The farmer is at the minimum of average variable costs.
Answer: B Type: Definition Page: 296
4. Farmers cannot individually affect market price because:

A) There is an infinite demand for their goods.
B) Demand is perfectly inelastic for the farmer's produce.
C) Their individual production is insignificant relative to the production of the market.
D) The government exercises control over the market power of competitive firms.
Answer: C Type: Basic Understanding Page: 296
5. Which of the following is a characteristic of perfectly competitive agricultural markets?

A) Product differentiation.
C) Significant barriers to entry.
B) Price below marginal cost.
D) A large number of farms.
Answer: D Type: Basic Understanding Page: 296
Page 1

6.
A)
B)
C)
D)
Agricultural markets typically are characterized by:

Product differentiation.
Relatively high research and development expenditure, but low changes in productivity.
Price taking on the part of producers.
All of the above.
7. Which of the following characterizes a competitive agricultural market?

A) A downward-sloping demand curve confronting the firm.
B) A horizontal demand curve for the market.
C) A market price at the equilibrium price for the market.
8. There are many wheat farmers, each of whom produces the same product. The wheat market can best be
classified as:
A) A competitive market. B) Monopolistic competition. C) Oligopoly. D) Monopoly.
Answer: A Type: Complex Understanding Page: 296
9. If agricultural markets are perfectly competitive, which of the following conditions is most likely to apply?
A) Interdependence of farms in selling their output.
B) The products of farmers in a market are homogeneous.
C) The individual farmers advertise heavily.
D) Collusion.
Answer: B Type: Basic Understanding Page: 296
10. If an individual farmer in a perfectly competitive agricultural market raises price above the market price,
the farmer will:
A) Not sell any product.
C) Earn greater total revenue.
B) See other farmers follow the price rise.
D) Earn greater total profit.
Answer: A Type: Basic Understanding Page: 296
11. In a perfectly competitive agricultural market with economic profits, farmers will:
A) Buy more farmland and expand production until profits are normal.
B) Buy more farmland and expand production until accounting profits are zero.
C) Exit until normal profits are zero.
D) Not enter or exit based on economic profits.
Page 2

12.
A)
B)
C)
D)
In a perfectly competitive farm market with economic losses, farmers will:

Buy more farmland and expand until profits are normal.
Exit until accounting profits are zero.
Exit until profits are normal.
Not enter or exit based on economic profits.
13. The exit of farms from a market should:

A) Shift the agricultural market supply curve to the right.
B) Reduce the equilibrium market output.
C) Reduce earnings of existing farms.
Answer: B Type: Complex Understanding Page: 296
14. If an agricultural market is perfectly competitive, which of the following types of behavior might be
expected?
A) Price wars. B) Advertising. C) Frequent entry and exit. D) Collusion in restraint of trade.
15. Which of the following is consistent with farming as a competitive market?

A) A small number of firms.
B) Marginal revenue lower than price for each firm.
C) Exit of small firms when profits are high for large firms.
D) Zero economic profit in the long run.
16. In perfectly competitive agricultural markets, farmers compete on the basis of:
A) Advertising only.
C) Improvements in productivity.
B) Price only.
D) Both price and nonprice competition.
17. Productivity increases in U.S. agriculture have:

A) Increased the demand for food products.
B) Been negligible since World War II.
C) Increased farm prices and incomes above national averages.
D) Tended to lower farm incomes.
Answer: D Type: Complex Understanding Page: 296
Page 3

18.
When the percentage change in quantity demanded is less than the percentage change in price,
ceteris paribus:
A) Demand is elastic.
C) Demand is unitary elastic.
B) Demand is inelastic.
D) The demand curve is horizontal.
19. The price elasticity of demand for agricultural goods shows:

A) That the market demand curve for agricultural goods is horizontal.
B) How the quantity demanded of agricultural goods responds to changes in the prices of other goods.
C) How the quantity demanded of agricultural goods responds to changes in the prices of agricultural
goods.
20. The typically price-inelastic demand for agricultural products can be explained by:
A) Increasing opportunity costs.
C) Rapidly diminishing marginal utility.
B) Increasing marginal costs.
D) Slowly diminishing marginal utility.
Answer: C Type: Complex Understanding Page: 296
21. If the price elasticity of demand for food is low, an increase in supply due to an improvement in technology,
will result in:
A) Higher prices and a decrease in total revenue.
C) Lower prices and a decrease in total revenue.
B) Higher prices and an increase in total revenue. D) Lower prices and an increase in total revenue.
Answer: C Type: Definition Page: 296
22. Given the typical elasticity of demand for food, a poor harvest should, ceteris paribus, lead to:
A) Lower prices but higher total revenues.
C) Higher prices but lower total revenues.
B) Lower prices and lower total revenues.
D) Higher prices and higher total revenues.
23. A bumper crop of wheat can lead to sharply lower market prices and a decline in earned farm income
primarily because:
A) The demand for wheat is price inelastic.
B) Foreign exports of wheat to the United States should increase.
C) The income elasticity of demand for wheat is negative.
D) The demand curve faced by individual wheat farmers is price-inelastic.
Page 4

24.
A)
B)
C)
D)
The income elasticity of food demand is low, which means that an increase in income results in:
An even greater increase in the quantity of food demanded.
A very slight increase in the quantity of food demanded.
Absolutely no increase in the quantity of food demanded.
A significant decrease in the quantity of food demanded.
25. The price elasticity of demand for soybeans is defined as the:

A) Percentage change in quantity demanded of soybeans divided by the percentage change in the price of
soybeans.
B) Percentage change in quantity demanded of soybeans times the percentage change in soybean price.
C) Unit change in soybean price divided by the unit change in quantity demanded of soybeans.
D) Unit change in quantity demanded of soybeans times the unit change in the price of soybeans.
Answer: A Type: Definition Page: 296
26. Suppose European incomes increase by 5 percent per year and as a result, U.S. exports of farm goods to
Europe rise by 1 percent annually. The elasticity which can be computed from this information is the:
A) Cross-price elasticity of demand for U.S. farm exports with respect to European income.
B) Cross-price elasticity of demand for income with respect to exports.
C) Income elasticity of demand for U.S. farm exports.
D) Price elasticity of demand.
27. Suppose European incomes increase annually by 6 percent per year. As a result, U.S. farm exports to
Europe rise by 2 percent annually. The numerical value of the income elasticity of demand for U.S. farm
exports is:
A) 0.33. B) -3.0. C) 12.0. D) 3.0.
28. Suppose European incomes increase annually by 4 percent per year and as a result, U.S. farm exports to
Europe rise by 2 percent annually. The U.S. farm exports are:
A) Inferior goods. B) Normal goods. C) Price-elastic. D) Substitute goods.
Answer: B Type: Analytical Page: 296
29. Suppose a bumper crop results in a 20 percent increase in output and sales, while the price elasticity of
demand for wheat is about 0.4. Ceteris paribus, prices should:
A) Rise by 8 percent. B) Fall by 8 percent. C) Rise by 50 percent. D) Fall by 50 percent.
Answer: D Type: Analytical Page: 296
Page 5

30.
Suppose a drought results in a 15 percent increase in the market price for corn, while the elasticity
of demand for corn is about 0.4. Ceteris paribus, if the market price elasticity is correct, the drought caused:
A) A drop of 6 percent in corn production.
C) A rise of 6 percent in corn production.
B) A drop of 37.5 percent in corn production.
D) A rise of 37.5 percent in corn production.
31. If the price of corn falls by 25 percent on world markets, causing American corn consumption to increase
by 5 percent, ceteris paribus, the price elasticity of demand for corn in the United States would be:
A) 0.20. B) 0.75. C) 1.25. D) 0.30.
32. Suppose American corn farmers plant a higher-yielding variety of corn. As a result of this investment,
output increases by 2 percent. If the price elasticity of demand for corn is 0.25, market prices will:
A) Increase by 8 percent.
C) Decrease by 0.50 percent.
B) Decrease by 8 percent.
D) Decrease by 2 percent.
33. If the price elasticity of demand for food is elastic, a successful effort by farmers to increase productivity,
ceteris paribus, will result in:
A) Higher total revenues.
C) Higher prices for food crops.
B) Lower total revenues.
D) Higher demand for food corps.
34. If government support for U.S. farmers is completely eliminated, which of the following scenarios is most
likely to be true in the long run?
A) Economic profits would be normal and output would be at the minimum ATC.
B) Excess capacity would exist due to product differentiation.
C) Economic losses would exist.
D) There would be a larger number of farmers because of greater ease of entry.
35. Agricultural prices:

A) Are being influenced less by international markets than they were twenty years ago.
B) Are lower because government support programs exist.
C) Have fallen relative to nonagricultural prices in the long run.
D) Are very stable since the government supports most agricultural prices.
Page 6

36.
A)
B)
C)
D)
Prices of farm products are:

Very stable in the short run.
Subject to short-term swings.
Below the market equilibrium price because of price-support programs.
The result of government enforced price ceilings in the farming industry.
37. Wide price swings in farm products are the result of:
A) Supply shifts and the relatively inelastic demand for food.
B) Supply shifts and the relatively elastic demand for food.
C) The high income elasticity of food demand.
D) Demand shifts and the relatively elastic supply of food.
38. Short-term price swings for farm products are partially the result of:
A) Producers acting collectively to bid up prices.
B) The high income elasticity of food demand.
C) The high price elasticity of food demand.
D) Time lags between the production decision and the resultant harvest.
THE FIRST FARM DEPRESSION, 1920-1940

39. Which of the following helped to maintain a healthy farm sector prior to 1920?
A) An expanding population.
C) Less advanced technology.
B) Recurrent wars.
40. During the period from 1910-1919, demand for U.S. farm goods:
A) Increased because of the expanded foreign demand.
B) Increased because of the improved farm technology.
C) Decreased because of the Great Depression.
D) Decreased because of restrictions on international trade.
41. Which of the following was a problem for the U.S. agricultural market during the 1920s?
A) Decreased demand for farm products by the European market because World War I had ended.
B) Decreased demand for farm exports because of increased restrictions on international trade.
C) Increased supply of farm products because of improved technology.
Page 7

U.S. FARM POLICY
42. Farm price-support programs most often take the form of:
A) Price ceilings which cause shortages.
C) Price floors which cause shortages.
B) Price ceilings which cause surpluses.
D) Price floors which cause surpluses.
43. Farm price-support programs most often take the form of:
A) Price ceilings above the equilibrium price.
C) Price floors above the equilibrium price.
B) Price ceilings below the equilibrium price.
D) Price floors below the equilibrium price.
44. Farm price-support programs often result in:

A) Prices above the equilibrium creating surpluses.
B) Prices above the equilibrium creating shortages.
C) Prices below the equilibrium creating surpluses.
D) Prices below the equilibrium creating shortages.
45. The result of maintaining above-equilibrium market prices for agricultural products is:
A) Shortages of agricultural products.
B) More resources devoted to agriculture than is optimal.
C) Redistribution of income from farmers to consumers.
46. Most farm programs in the United States focus on:

A) Reducing the cost of agricultural output.
B) Eliminating competition in agricultural markets.
C) Raising and stabilizing the price of farm output.
D) Eliminating the surplus of agricultural products.
47. The impact of price supports is to:

A) Decrease the output of farmers.
B) Shift the demand curve facing each farmer upward.
C) Reduce the market price.
D) Shift the supply curve to the right.
Page 8

48.
A)
B)
C)
D)
The impact of price supports is to:

Raise the market price.
Shift the demand curve facing each farmer upward.
Increase the output of farmers.
All of the above.
49. When effective price floors are set for an agricultural market, the quantity demanded will be:
A) Less than the equilibrium quantity, and price will be greater than the equilibrium price.
B) Less than the equilibrium quantity, and price will be less than the equilibrium price.
C) Greater than the equilibrium quantity, and price will be greater than the equilibrium price.
D) Greater than the equilibrium quantity, and price will be less than the equilibrium price.
50. When effective price floors are set to stabilize prices in an agricultural market, the quantity supplied will
be:
A) Less than the equilibrium quantity, and price will be less than the equilibrium price.
B) Less than the equilibrium quantity, and price will be greater than the equilibrium price.
C) Greater than the equilibrium quantity, and price will be less than the equilibrium price.
D) Greater than the equilibrium quantity, and price will be greater than the equilibrium price.
51. Which of the following would result from a price-support program when the support price is set above the
equilibrium price, ceteris paribus?
A) Output would decline.
C) The consumption of the product would rise.
B) The price paid by consumers would rise.
52. An effective price floor:

A) Results in a surplus.
B) Results from effective price ceilings.
C) Occurs when market prices are below equilibrium prices.
D) Can occur without government intervention.
Answer: A Type: Definition Page: 300
53. The relationship between farm and non-farm prices which existed during the period 1910 to 1914 is known
as:
A) The payment-in-kind program.
C) The target price.
B) The farm parity price.
D) Price supports.
Page 9

54.
Supply restrictions in the farming industry occur in the form of:
A) Acreage set-asides. B) Marketing orders. C) Import quotas. D) All of the above.
55. If the U.S. wanted tobacco farmers to produce the socially optimal output level, the best policy to pursue
would be to:
A) Continue the subsidy programs now in existence.
B) Allow the market to determine output levels without government intervention.
C) Allow the market to determine output levels with efficient government intervention to adjust for
externalities.
D) Raise support prices to 1901-1914 parity levels.
56. Supply restrictions in the farming industry occur in the form of:
A) Price supports. B) Deficiency payments. C) Acreage set-asides.
57. Supply restrictions in the farming industry occur in the form of:
A) Import quotas. B) Price supports. C) Government stockpiles.
D) Production subsidies.
58. Which of the following government actions result in supply restriction?

A) Acreage set-asides.
C) Authorization of marketing orders.
B) Import quotas.
59. An advantage of set-aside programs over price-support programs is that they:

A) Reduce the price of agricultural goods.
B) Transfer more income to farmers.
C) Raise the price of agricultural production but do not lead to a surplus of output.
D) Affect the demand side as well as the supply side of the farm problem.
60. Which of the following agricultural programs reduces agricultural output, rather than increasing it?
A) Direct income-support programs.
C) Marketing orders.
B) Farm cost subsidies.
D) Export sales.
Page 10

61.
A)
B)
C)
D)
The loan rate is:

The interest rate farmers pay banks for loans.
The same as the prime lending rate.
The implicit price paid by the government for surplus crops.
All of the above.
62. If the market price of wheat is below the government's loan rate:
A) The Commodity Credit Corporation lends the farmer an amount equal to the loan rate times the
farmer's wheat output and takes the farmer's wheat crop as collateral.
B) The wheat farmer defaults on the loan but keeps the crop; the CCC keeps the money.
C) The wheat farmer, in effect, buys the crop from the CCC.
63. Whenever market prices are below Commodity Credit Corporation loan rates:
A) There are restrictions on supply.
B) Export sales decrease.
C) The government takes surplus crops as collateral.
64. The government inflates the demand for farm products:

A) By purchasing surplus crops.
C) Through marketing orders.
B) Through acreage set-asides.
D) With price supports.
65. The market surplus induced by price supports can be eliminated through:
A) Government purchases. B) Export sales. C) Restrictions on supply. D) All of the above.
66. Which of the following can be used by the government to eliminate surplus food supplies?
A) The purchase of surplus food.
C) Restrictions on supply.
B) Encouragement of export sales.
67. Which of the following government actions will result in a decrease in surplus food supplies:
A) An increase in the loan rate.
B) A decrease in acreage set-asides.
C) Subsidized advertising of U.S. farm products in foreign markets.
D) A decrease in the stockpiling of surplus food.
Page 11
68. Which of the following can be used to eliminate agricultural shortages?

A) Selling the surplus in government stockpiles.
C) Acreage set-asides.
B) Stimulating export sales.
69. Irrigation water delivered by federally funded reclamation projects is classified as:
A) A farm cost subsidy.
C) Parity prices.
B) An income-support program.
D) A price-support policy.
70. Government subsidies on the purchase of irrigation water by farmers result in:
A) Higher fixed costs to farmers.
B) Lower costs of production and increased output.
C) Decreased output because variable costs are higher.
D) No change to fixed or variable costs.
71. The advantage of direct income supports is that they:

A) Provide income security without distorting market prices and output.
B) Raise market prices.
C) Increase market output.
D) Reduce consumption.
72. The advantage of direct income support to farmers is that:

A) Farm incomes increase without market surpluses.
B) In the absence of other government intervention and externalities, marginal cost pricing is practiced.
C) In the absence of other government intervention and externalities, technical efficiency is achieved.
73. A program of deficiency payments is best classified as a federal:

A) Price-support program.
C) Farm cost subsidy.
B) Income-support program.
D) Acreage set-aside.
74. The principal form of direct income support is:

A) Price supports. B) Costs subsidies. C) Supply restrictions.
Page 12
D) Deficiency payments.
75. Deficiency payments are:

A) An income transfer paid to farmers.
B) Not well received by farmers.
C) More efficient than price supports in subsidizing farm incomes.
Answer: D Type: Definition Page: 303
76. Deficiency payments are:

A) Preferred by farmers over price supports.
B) An income transfer paid directly to farmers.
C) An indirect subsidy to farmers.

THE SECOND FARM DEPRESSION, 1980-1986

77. Farming profits are affected by costs such as:
A) Fuel costs. B) Fertilizer costs. C) Interest rates.
78. Farming profits between 1979 and 1983 were affected by:
A) Declining land values. B) Declining exports. C) Rising interest rates.
79. The profit of farmers between 1979 and 1983 fell because of:
A) Rising land values. B) Increasing exports. C) Rising fuel costs.
80. When interest rates rise, farm profits:

A) Increase because the value of farm assets varies directly with interest rates.
B) Decrease because the value of farm assets varies directly with interest rates.
C) Decrease because interest rates represent a major cost for farm production.
D) Are not affected.
Page 13

81.
A)
B)
C)
D)
When interest rates fall, farm profits:

Increase because the value of farm assets varies directly with interest rates.
Decrease because the value of farm assets varies directly with interest rates.
Rise because interest rates represent a major cost for farm production.
Are not affected.
82. When interest rates fall, land values:

A) Increase because the profitability of land is indirectly related to interest rates.
B) Increase because the profitability of land is directly related to interest rates.
C) Decrease because the profitability of land is indirectly related to interest rates.
D) Decrease because the profitability of land is directly related to interest rates.
83. A weaker U.S. dollar, ceteris paribus:

A) Raises costs of importing agricultural products from abroad to the United States.
B) Raises the dollar value of farmland because it increases foreign demand for U.S. agricultural products.
C) Generates short-run economic profits for farmers because it increases foreign demand for U.S.
agricultural products.
84. A stronger U.S. dollar, ceteris paribus:

A) Reduces the costs of importing agricultural products from abroad to the United States.
B) Reduces the dollar value of farmland because it decreases foreign demand for U.S. agricultural
products.
C) Generates short-run economic losses for farmers because it decreases foreign demand for U.S.
agricultural products.
85. An increase in the value of the U.S. dollar internationally, ceteris paribus, would result in:
A) Higher revenues for U.S. farmers.
B) An increase in the dollar value of U.S. farmland.
C) Lower revenues for U.S. farmers.
D) An increase in the domestic prices of U.S. farm products.
Page 14

THE ECONOMY TOMORROW
86. The Farm Security Act of 1985:
A) Reduced government support services.
B) Limited the government purchase of market surpluses.
C) Placed a cap on deficiency payments.

A) Reduced government support prices.
B) Encouraged acreage set-asides.
C) Increased subsidy payments to huge corporate farms.
D) Increased government purchases of market surpluses.
88. The 1990 Farm Act:

A) Reduced target prices for farm products.
B) Increased the amount of set-aside acreage.
C) Reduced loan rates.

89. The 1990 Farm Act resulted in:

A) A reduction in the target prices for farm products.
B) A reduction in the amount of set-aside acreage.
C) More market surpluses being sold rather than stored in government warehouses.
90. The 1996 Freedom to Farm Act:

A) Abolished the subsidy programs for all farm products.
B) Eliminated target prices and associated deficiency payments.
C) Re-regulated the farming industry.
D) Reduced loan rates.

A) Abolished the subsidy programs for all farm products.
B) Increased the amount of acreage set-asides.
C) Re-regulated the farming industry.
D) Further deregulated the farming industry.
Page 15

A) Eliminated target prices and deficiency payments.
B) Refocused farm policy toward stabilizing farm incomes rather than prices.
C) Eliminated many restrictions on acreage set-asides.
93. The intent of the 1996 Freedom to Farm Act was to:
A) Make farmers more dependent on market forces.
B) Improve allocative efficiency.
C) Reduce prices to consumers.
94. The primary intent of the 1996 Freedom to Farm Act was to:
A) Make farmers more dependent on market forces.
B) Increase prices paid to farmers.
C) Increase acreage set-asides.
95. What impact did the "Asian crisis" have on U.S. agriculture beginning in 1998?
A) Decreased farm exports to Asia.
B) Decreased grain prices.
C) Decreased employment in the U.S. farm equipment industry.
96. The principle cause of a third farm depression beginning in 1998 was:
A) A crop failure in 1998.
C) The Asian economic crisis.
B) A decrease in grain prices.
97. The response of Congress to the third farm depression beginning in 1998 was to:
A) Further deregulate the farming industry.
B) Set quotas on agricultural imports.
C) Increase federal aid to farmers, counter to the intent of the 1996 Farm Act.
D) Reinstate target prices and deficiency payments.
Page 16

98.
A)
B)
C)
D)
The Farm Security Act of 2001:

Created new subsidies for sugar growers.
Decreased the loan deficiency payments.
Increased the reliance of farmers on market signals.
Reduced the subsidies paid to farmers.

A) Increased the subsidies paid to farmers.
B) Increased the loan deficiency payments.
C) Created new subsidy programs.

100. The Farm Security Act of 2001 increased subsidies to farmers which is likely to:
A) Decrease the farm surpluses.
C) Lower the interest rates farmers pay.
B) Increase the farm surpluses.
D) Decrease the CCC loan rates.
101. The government creates a moral hazard when it:

A) Encourages the type of behavior that leads to an undesirable allocation of resources.
B) Ignores the plight of a group suffering economic depravation, such as farmers during the third farm
depression.
C) Passes laws it knows cannot be enforced.
D) Does not provide the same level of moral leadership that it expects from U.S. citizens.
Use the following to answer questions 102-112:

Select the letter of the diagram in Figure 14.1 that best represents the effect of each event on the United States wheat
market, ceteris paribus.
Figure 14.1
S u p p ly C u rv e
(le ftw a rd )
S u p p ly C u rv e
(rig h tw a rd )
D e m a n d C u rv e
(le ftw a rd )
Q u a n tity o f W h e a t
(a )
(b )
(c )
Page 17
D e m a n d C u rv e
(rig h tw a rd )
(d )

102.
A) a.
A crop failure in Russia results in large exports of wheat from the United States. (See Figure 14.1.)
B) b. C) c. D) d.
103. Interest rates fall, which reduces debt-service requirements of farmers. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
104. Transport costs for farm products decrease. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
105. Immigration restrictions lead to higher labor costs. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
106. The federal government decides to no longer purchase wheat from farmers. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
107. The dollar falls in value in the foreign exchange markets. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
108. The dollar increases in value in the foreign exchange markets. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
109. The federal government restricts the amount of agricultural products that can be imported. (See Figure
14.1.)
A) a. B) b. C) c. D) d.
110. The federal government allows increased imports of agricultural products. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
Page 18
111. The European Union tightens restrictions on the agricultural products that can be imported from the United
States. (See Figure 14.1.)
A) a. B) b. C) c. D) d.
112. The European Union reduces restrictions on the agricultural products that can be imported from the United
States. (See Figure 14.1.)
A) a. B) b. C) c. D) d.

Figure 14.2
113. At a price of P1 in Figure 14.2, there would be a:

A) Shortage measured by the distance Q1 to Q5.
B) Shortage measured by the distance Q1 to Q3.
C) Surplus measured by the distance Q1 to Q5.

D) Surplus measured by the distance Q2 to Q4.
114. If the government wished to institute a set-aside program to support the price at P 1 rather than P2 in Figure
14.2, by how much would market output be reduced?
A) Q5 to Q1. B) Q3 to Q1. C) Q3 to Q2. D) Q4 to Q2.
Answer: C Type: Analytical Page: 300
Page 19

115.
If the market price fell to P3 in Figure 14.2, ceteris paribus, there would be:
A) Excess demand measured by the distance Q1 to Q5.
B) Excess supply measured by the distance Q2 to Q3.
C) Excess demand measured by the distance Q1 to Q3.
D) Excess supply measured by the distance Q2 to Q4.

Figure 14.3
M C
ATC
AV C
P ric e
F lo o r
M R
Q U A N T IT Y
116. Refer to Figure 14.3 for Farmer Brown with a price floor set above the market price. Assume the price
support is located at the minimum point on the farmer's ATC curve. If this support is eliminated, Farmer
Brown may:
A) Leave the market.
B) Reduce costs by investing in new technology.
C) Shutdown in the short run if price is below the minimum AVC.
117. Refer to Figure 14.3 for Farmer Brown with a price floor set above the market price. Assume the price
support is located at the minimum point on the farmer's ATC curve. If this support is eliminated:
A) Some farmers will leave the industry.
B) Farmers will begin to lose money as the price returns to equilibrium.
C) Fewer resources will be allocated to this market.
Page 20

Figure 14.4
P R IC E
S u p p ly
P2
P1
D em and
Q
Q U A N T IT Y
118. Refer to Figure 14.4 for an agricultural market with equilibrium price P1 and support price P2. At the
support price of P2, a surplus exists equal to:
A) Q3. B) Q3 - Q2. C) Q3 - Q1. D) Q1 - Q2.
119. In Figure 14.4, how much will the output change, compared to the equilibrium output, when a support price
of P2 is imposed?
A) Decrease by Q3 minus Q2.
C) Increase by Q3 minus Q2.
B) Decrease by Q1 minus Q2.
D) Increase by Q3 minus Q1.
Page 21

Use the following to answer question 120:
Figure 14.5
M C
P2
M R 2
P1
M R 1
Q 1
Q 2
Q U A N T IT Y
120. Refer to Figure 14.5 for Farmer Betty facing an equilibrium price of P1 and a support price of P2. At the
support price of P2 :
A) Farmer Betty is using resources that could be producing more highly valued goods.
B) Farmer Betty needs more resources to produce the socially optimal level of output.
C) Farmer Betty, and other farmers like her, will be forced from this market because of the surpluses being
created.
D) A shortage is being created.

Figure 14.6
S
P R IC E
CCC
lo a n
ra te
P1
D
Q
Q U A N T IT Y
Page 22

121.
Refer to Figure 14.6 for a cotton market with an equilibrium price of P1 and a CCC loan rate set
above P1. Given this situation, cotton farmers are most likely to:
A) Sell their cotton on the market and repay the CCC loan with the proceeds plus other funds to make up
the difference.
B) Sell their cotton on the market and only repay a portion of the CCC loan.
C) Give their cotton to the CCC and not repay the loan.
D) Leave the cotton farming business.
122. Refer to Figure 14.6 for a cotton market with an equilibrium price of P1 and a CCC loan rate set above P1.
If the CCC loan rate is increased, the:
A) Surplus in the market will become larger.
C) Shortage in the market will become larger.
B) Surplus in the market will become smaller.
D) Shortage in the market will become smaller.
The following multiple-choice questions require critical thinking about In the News and World View articles that
appeared in the text.
123. One World View article reports about the EU " the subsidy for every cow is greater than the personal
income of half the people in the world." Which of the following programs is involved?
A) Price supports.
C) Direct income support.
B) A reduction of production costs.
124. One World View article reports "Most industrialized countries go to even greater lengths [than the United
States] to protect domestic agriculture." Which government program would protect farm products?
A) Elimination of trade barriers for farm goods.
C) A laissez-faire policy.
B) Farm subsidies.
125. One World View article reports "The European Union (EU) imposes high tariffs on imported food "
Which of the following farm-support programs is involved?
A) Stabilizing prices.
C) Providing direct income support.
B) Reducing production costs.
126. One World View article reports " France, Germany, and Switzerland all shield their farmers from
international competition while subsidizing their exports." Which of the following shifts for agricultural
products in international markets shows the effect of export subsidies?
A) The supply curve shifts to the right.
C) The demand curve shifts to the right.
B) The supply curve shifts to the left.
D) The demand curve shifts to the left.
Page 23
DESTABILIZING FORCES
T
F 127. Because there are 2 million farms in the U.S., individual farmers have some market power.
Answer: False Type: Basic Understanding Page: 296
F 128. Individual farmers behave like perfect competitors but are still able to earn economic profits in the
long run.
F 129. The farming industry experiences high barriers to entry because of the large amounts of acreage
and expensive equipment that are needed.
F 130. The demand for food is price inelastic.

Answer: True Type: Basic Understanding Page: 296
F 131. Changes in weather cause abrupt shifts in the food supply curve which result in price fluctuations.
F 132. Given a change in food prices, farmers are typically able to respond rapidly with a change in
output.
F 133. Bumper crops generally reduce farm incomes.

THE FIRST FARM DEPRESSION, 1920-1940

T
F 134. During the early 1900s, U.S. farm goods were heavily subsidized by the government.
F 135. Demand for U.S. farm products was high during World War I.
Page 24
F 136. U.S. farm exports increased during the 1920s because of reduced trade barriers.
U.S. FARM POLICY

T
F 137. Farm-support programs most often take the form of price floors, which cause excess demand.
F 138. Acreage set-asides shift the food supply curve to the right and decrease farm prices.
F 139. An embargo on U.S. agricultural crops decreases the demand for U.S. agricultural goods abroad.
F 140. The loan rate is a low interest rate at which farmers may borrow from the federal government on a
short-term basis.
F 141. The effect of Commodity Credit Corporation loan programs is to alter the quantity demanded of
farm products as well as to increase the quantity supplied.
F 142. If parity prices are "fair" they will not cause a market surplus.
F 143. When angry farmers cried "parity not charity" they wanted higher price supports rather than a
direct subsidy.
THE SECOND FARM DEPRESSION, 1980-1986

T
F 144. An increase in fuel prices resulted in higher costs in agriculture during the 1980s.
Page 25
F 145. Lower interest rates tend to reduce farm incomes.

F 146. A weaker value of the U.S. dollar strengthens exports of American agricultural crops.
THE ECONOMY TOMORROW

T
F 147. The Farm Security Act of 1985 included a gradual reduction in government support prices.
F 148. The 1996 Freedom to farm Act actually increased the level of government assistance to farmers.
F 149. In the late 1990s, the Asian crisis reduced the demand for U.S. farm products which weakened
farm prices.
Page 26

Farm Market Forces

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Farm Market Forces

Hochgeladen von

Copyright:

Verfügbare Formate

Chapter 14: The Farm Problem

Chapter 14: The Farm Problem

2. Individual farmers cannot influence market prices because:

3. The horizontal demand curve faced by a farmer indicates that:

4. Farmers cannot individually affect market price because:

5. Which of the following is a characteristic of perfectly competitive agricultural markets?

Chapter 14: The Farm Problem

Agricultural markets typically are characterized by:

Answer: C Type: Basic Understanding Page: 296

7. Which of the following characterizes a competitive agricultural market?

Chapter 14: The Farm Problem

In a perfectly competitive farm market with economic losses, farmers will:

Answer: C Type: Basic Understanding Page: 296

13. The exit of farms from a market should:

15. Which of the following is consistent with farming as a competitive market?

17. Productivity increases in U.S. agriculture have:

Chapter 14: The Farm Problem

19. The price elasticity of demand for agricultural goods shows:

Chapter 14: The Farm Problem

Answer: B Type: Basic Understanding Page: 296

25. The price elasticity of demand for soybeans is defined as the:

Chapter 14: The Farm Problem

35. Agricultural prices:

Chapter 14: The Farm Problem

Prices of farm products are:

Answer: B Type: Basic Understanding Page: 297

THE FIRST FARM DEPRESSION, 1920-1940

Chapter 14: The Farm Problem

44. Farm price-support programs often result in:

46. Most farm programs in the United States focus on:

47. The impact of price supports is to:

Chapter 14: The Farm Problem

The impact of price supports is to:

Answer: D Type: Basic Understanding Page: 300

52. An effective price floor:

Chapter 14: The Farm Problem

D) All of the above.

Answer: C Type: Basic Understanding Page: 300

Answer: A Type: Basic Understanding Page: 300

58. Which of the following government actions result in supply restriction?

59. An advantage of set-aside programs over price-support programs is that they:

Chapter 14: The Farm Problem

The loan rate is:

Answer: C Type: Basic Understanding Page: 300

64. The government inflates the demand for farm products:

Chapter 14: The Farm Problem

68. Which of the following can be used to eliminate agricultural shortages?

71. The advantage of direct income supports is that they:

72. The advantage of direct income support to farmers is that:

73. A program of deficiency payments is best classified as a federal:

74. The principal form of direct income support is:

Chapter 14: The Farm Problem

75. Deficiency payments are:

76. Deficiency payments are:

C) An indirect subsidy to farmers.

Answer: B Type: Definition Page: 303

THE SECOND FARM DEPRESSION, 1980-1986

D) All of the above.

Answer: D Type: Basic Understanding Page: 304

D) All of the above.

Answer: D Type: Basic Understanding Page: 305

D) All of the above.

Answer: C Type: Basic Understanding Page: 305