Deck 15: Monetary Policy

Question 1

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

A) Buy more farmland and expand until profits are normal.
B) Exit until accounting profits are zero.
C) Exit until profits are normal.
D) Not enter or exit based on economic profits.

Answer 1

C

Question 2

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

A) A large percentage of costs are for advertising.
B) Negative economic profit in the long run.
C) Positive economic profit in the long run.
D) Zero economic profit in the long run.

Answer 2

D

Question 3

In the United States, in general, farmers behave like

A) Monopolists.
B) Oligopolists.
C) Perfect competitors.
D) Monopolistic competitors.

Answer 3

C

Question 4

Compared to the early 1950s, today farm output per labor-hour is

A) 10 times greater than it was then.
B) The same as it was then.
C) 20 times greater than it was then.
D) 20 percent less than it was then.

Question 5

If an agricultural market is perfectly competitive, which of the following types of behavior might be expected?

A) Price wars.
B) Economic profits encourage entry.
C) Advertising.
D) Collusion in restraint of trade.

Question 6

If an agricultural market is perfectly competitive, then

A) A farmer is a price taker.
B) A farmer practices price discrimination.
C) The market demand curve is perfectly elastic.
D) Each firm's demand curve is perfectly inelastic.

Question 7

The price elasticity of demand for food is

A) Perfectly inelastic.
B) Relatively inelastic.
C) Relatively elastic.
D) Perfectly elastic.

Question 8

The typically price-inelastic demand for agricultural products can be explained by

A) Increasing opportunity costs.
B) Rapidly diminishing marginal utility.
C) Increasing marginal costs.
D) Slowly diminishing marginal utility.

Question 9

If an individual farmer in a perfectly competitive agricultural market raises her price above the market price, the farmer will

A) Not sell any product.
B) Earn greater total revenue.
C) See other farmers follow the price rise.
D) Earn greater total profit.

Question 10

Ceteris paribus, if the corn crop is 15 percent larger this year than it was last year, farmers will have to ________ the price of corn by ________ to sell the new crop.

A) raise; more than 15 percent
B) reduce; more than 15 percent
C) reduce; less than 15 percent
D) reduce; exactly 15 percent

Question 11

Which of the following characterizes a competitive agricultural market?

A) The firm has a downward-sloping demand curve.
B) The market has a horizontal demand curve.
C) Price is determined by market demand and market supply.
D) Economic profit is earned in the long run.

Question 12

The exit of farms from a market should

A) Shift the agricultural market supply curve to the right.
B) Increase the equilibrium market price.
C) Decrease the equilibrium market price.
D) Increase the equilibrium market output.

Question 13

In order to continue earning an economic profit, individual farmers must

A) Expand their rate of output until marginal cost equals zero.
B) Charge higher prices than their competitors.
C) Continue to improve their productivity.
D) Charge lower prices than their competitors.

Question 14

Individual farmers maximize profit by producing the level of output at which

A) Marginal cost equals average cost.
B) Marginal cost equals zero.
C) Marginal cost equals price.
D) Average cost equals zero.

Question 15

Which of the following characterizes a typical agricultural market?

A) A horizontal demand curve for the industry.
B) Market power on the part of each farmer.
C) A downward-sloping demand curve for the firm.
D) Low barriers to entry.

Question 16

Which of the following is true for a perfectly competitive agricultural market with economic profits?

A) Firms will enter and existing firms will increase their production until economic profits are zero.
B) The profits will last indefinitely since there are barriers to entry.
C) Firms will exit until normal profits are zero.
D) No entry or exit will occur based on economic profits.

Question 17

Which of the following is true for the agriculture market?

A) The law of demand does not apply.
B) Individual farmers face a horizontal demand curve.
C) Individual farmers face a vertical demand curve.
D) Farmers have market power.

Question 18

Because farm products have a low elasticity of demand, a small change in output will have

A) An indeterminate effect on price.
B) No effect on price.
C) A smaller effect on price.
D) A larger effect on price.

Question 19

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.

Question 20

How much will farm subsidies cost taxpayers between 2002 and 2012?

A) $15-$20 billion per year.
B) $50-$100 billion per year.
C) $500-$800 billion per year.
D) $1-$2 billion per year.

Question 21

From the early 1900s to 2007, the ratio of farm prices to nonfarm prices

A) Decreased 60 percent.
B) Increased 60 percent.
C) Decreased 25 percent.
D) Increased 25 percent.

Question 22

If the price elasticity of demand for food is low, an increase in supply due to an improvement in technology will result in a ______ price and _______ in total revenue.

A) higher; a decrease
B) lower; an increase
C) higher; an increase
D) lower; a decrease

Question 23

The biggest plunge in farm prices occurred

A) During WWI.
B) During the Great Depression of the 1930s.
C) After WWII.
D) The early 1900s.

Question 24

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.

Question 25

Because the income elasticity of food demand is low, we expect an increase in income to result in

A) A significant increase in the quantity of food demanded.
B) A very slight increase in the quantity of food demanded.
C) A very slight decrease in the quantity of food demanded.
D) A significant decrease in the quantity of food demanded.

Question 26

Agricultural prices

A) Are being influenced less by international markets than they were 20 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.

Question 27

Given the typical income elasticity for food, a 10 percent increase in income will lead to

A) An increase in food demand of more than 10 percent.
B) A decrease in food demand of less than 10 percent.
C) An increase in food demand of 10 percent.
D) An increase in food demand of less than 10 percent.

Question 28

Prices of farm products are

A) Very stable in the short run.
B) Subject to short-term swings.
C) Below the market equilibrium price because of price support programs.
D) The result of government-enforced price ceilings in the farming industry.

Question 29

Suppose a bumper wheat crop results in a 40 percent increase in output and sales, while the price elasticity of demand for wheat is about 0.8. Ceteris paribus, prices should

A) Rise by 8 percent.
B) Fall by 8 percent.
C) Rise by 50 percent.
D) Fall by 50 percent.

Question 30

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.

Question 31

Time lags between the production decision and the resultant harvest contribute to

A) Profit.
B) Loss.
C) Price instability.
D) Price stability.

Question 32

During the period from 1910 to 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.

Question 33

Response lags

A) Reduce short-term price instability.
B) Increase short-term price instability.
C) Slow the long-term downward trend in farm prices.
D) Increase the long-term downward trend in farm prices.

Question 34

A bumper crop of apples can lead to sharply lower market prices and a decline in earned farm income primarily because

A) The demand for apples is price-inelastic.
B) Foreign exports of apples to the United States should increase.
C) The income elasticity of demand for apples is negative.
D) The demand curve faced by individual apple farmers is price-inelastic.

Question 35

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.

Question 36

Which of the following helped to maintain a healthy farm sector prior to 1920?

A) A decreasing population.
B) More advanced technology.
C) Recurrent wars.
D) Food for peace programs.

Question 37

Suppose European incomes increase by 4 percent per year, and as a result, U.S. exports of farm goods to Europe rise by less than 4 percent annually. The elasticity that can be computed from this information is the

A) Price elasticity of supply.
B) Cross-price elasticity of demand for income with respect to U.S. farm goods.
C) Income elasticity of demand for U.S. farm exports.
D) Price elasticity of demand.

Question 38

Farm price support programs most often take the form of price

A) Ceilings, which cause shortages.
B) Floors, which cause shortages.
C) Ceilings, which cause surpluses.
D) Floors, which cause surpluses.

Question 39

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.

Question 40

Given the typical price elasticity of demand for food, a poor harvest should, ceteris paribus, lead to

A) Lower prices but higher total revenues.
B) Higher prices but lower total revenues.
C) Lower prices and lower total revenues.
D) Higher prices and higher total revenues.

Question 41

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.

Question 42

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.
B) The price paid by consumers would rise.
C) The consumption of the product would rise.
D) Quality would deteriorate.

Question 43

If the support price is set below the equilibrium market price,

A) A surplus will result.
B) A shortage will result.
C) The equilibrium price will result.
D) There will be upward pressure on prices.

Question 44

The relationship between farm and nonfarm prices that existed during the period from 1910 to 1914 is known as

A) The payment-in-kind program.
B) The target price.
C) The farm parity price.
D) Price supports.

Question 45

The impact of price supports is to

A) Reduce the market price.
B) Shift the demand curve for each farmer to the left.
C) Increase the output of farmers.
D) Decrease the output of farmers.

Question 46

The primary focus of U.S. farm policy has been

A) Subsidies.
B) Price supports.
C) Low-interest loans.
D) Tax credits for mechanical equipment.

Question 47

Farm price support programs most often take the form of price

A) Ceilings above the equilibrium price.
B) Floors above the equilibrium price.
C) Ceilings below the equilibrium price.
D) Floors below the equilibrium price.

Question 48

Which of the following government actions will decrease 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 import restrictions.

Question 49

The market surplus induced by price supports can be eliminated through all of the following except

A) Government purchases.
B) Restrictions on supply.
C) Export sales.
D) Increased subsidies.

Question 50

Supply restrictions in the farming industry occur in the form of

A) Price supports.
B) Acreage set-asides.
C) Countercyclical payments.
D) Direct income support.

Question 51

The Agricultural Adjustment Act of 1933 was based on the belief that farm incomes would improve if

A) Parity prices were eliminated.
B) Acreage set-asides were eliminated.
C) Parity prices were restored.
D) Acreage set-asides were reduced.

Question 52

Supply restrictions in the farming industry occur in all of the following forms except

A) Acreage set-asides.
B) Marketing orders.
C) Import quotas.
D) Export subsidies.

Question 53

If a price support is maintained above the equilibrium price, the result will be a

A) Market price that is too low.
B) Market price equal to the equilibrium price.
C) Surplus of the product.
D) Shortage of the product.

Question 54

Which of the following agricultural programs reduces agricultural output rather than increasing it?

A) Direct income support programs.
B) Marketing orders.
C) Farm cost subsidies.
D) Export sales.

Question 55

Which program forces farmers to destroy millions of dollars' worth of crops each year?

A) Marketing orders.
B) Set-asides.
C) The dairy termination program.
D) Countercyclical payments.

Question 56

Supply restrictions in the farming industry occur in the form of

A) Import quotas.
B) Government stockpiles.
C) Price supports.
D) Production subsidies.

Question 57

An effective price floor

A) Results in a surplus.
B) Results in a shortage.
C) Occurs when market prices are below equilibrium prices.
D) Can occur due to collusion.

Question 58

Parity pricing refers to the relative price of farm products to nonfarm products in the period

A) 1930-1944.
B) 1985-2004.
C) 1910-1914.
D) 1950-1985.

Question 59

All of the following government actions result in supply restriction except

A) Acreage set-asides.
B) Authorization of marketing orders.
C) Import quotas.
D) Subsidies.

Question 60

If an agricultural price support keeps a price above the equilibrium market price,

A) Shortages of agricultural products will result.
B) More resources will be devoted to agriculture than are optimal.
C) There will be redistribution of income from the government to consumers.
D) There will be positive market feedback leading to even higher prices.

Question 61

In 2010 how much could a wheat farmer borrow for every bushel of wheat relinquished to the Commodity Credit Corporation (CCC)?

A) $1.95.
B) $2.94.
C) $3.00.
D) $5.00.

Question 62

Refer to Figure 29.2 for Farmer Smith 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, all of the following will result except

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.
D) The rate of return on invested capital will increase.

Question 63

Which of the following items have been subsidized by the U.S. federal government for farmers?

A) Insurance but not drainage.
B) Fertilizer but not insurance.
C) Water but not fertilizer.
D) Insurance, water, drainage, and fertilizer.

Question 64

Government subsidies on the purchase of fertilizer 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.

Question 65

Prior to 2001, if the market price of cotton was below the government's loan rate,

A) The cotton farmer received a loan deficiency payment and relinquished the crop to the CCC.
B) The cotton farmer defaulted on the loan but kept the crop; the CCC kept the money.
C) The cotton farmer, in effect, bought the crop from the CCC.
D) The cotton farmer gave the crop to the CCC and was forced to exit the industry.

Question 66

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

A) Selling the surplus in government stockpiles.
B) Stimulating export sales.
C) Acreage set-asides.
D) Imposing price ceilings.

Question 67

The 2001 amendment to the Commodity Credit Corporation (CCC) loan program tends to

A) Reduce upward price swings.
B) Intensify upward price swings.
C) Reduce downward price swings.
D) Intensify downward price swings.

Question 68

If the government wished to institute a set-aside program to support the price at P₁ rather than P₂ in Figure 29.1, by how much would market output be reduced?

A) Q₅ to Q_1.
B) Q₃ to Q_1.
C) Q₃ to Q_2.
D) Q₄ to Q_2.

Question 69

Refer to Figure 29.2 for Farmer Sanchez 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 Sanchez may do all of the following except

A) Leave the market.
B) Reduce costs by investing in new technology.
C) Shut down in the short run if price is below the minimum AVC.
D) Increase production.

Question 70

The loan rate is the

A) Interest rate farmers pay banks for loans.
B) Same as the prime lending rate.
C) Implicit price paid by the government for surplus crops.
D) Difference in the market price and the cost of production.

Question 71

Refer to Figure 29.3 for a cotton market with an equilibrium price of P₁ and a Commodity Credit Corporation (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 repay only a portion of the CCC loan.
C) Give their cotton to the CCC and not repay the loan.
D) Leave the cotton farming business.

Question 72

Refer to Figure 29.3 for a cotton market with an equilibrium price of P₁ and a Commodity Credit Corporation (CCC) loan rate set above P₁. If the CCC loan rate is increased, the

A) Surplus in the market will become larger.
B) Surplus in the market will become smaller.
C) Shortage in the market will become larger.
D) Shortage in the market will become smaller.

Question 73

Which of the following is not an advantage of direct income support to farmers?

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.
D) Market prices and total farm income increase.

Question 74

According to the text, which of the following items has the U.S. federal government subsidized for farmers?

A) Transportation.
B) Migrant workers.
C) Marketing.
D) Seeds.

Question 75

If a farmer sells a crop and uses some of the proceeds to repay the Commodity Credit Corporation (CCC), the market price is

A) Higher than the countercyclical payment.
B) Lower than the loan rate.
C) Lower than the countercyclical payment.
D) Higher than the loan rate.

Question 76

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.

Question 77

Refer to Figure 29.1. At a price of P₁ in Figure 29.1, 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.

Question 78

The government inflates the demand for farm products

A) By purchasing surplus crops.
B) Through marketing orders.
C) Through acreage set-asides.
D) With price supports.

Question 79

The implicit price paid by the government for surplus crops taken as collateral for loans to farmers is called

A) The interest rate.
B) A countercyclical payment.
C) A loan subsidy.
D) The loan rate.

Question 80

Irrigation water delivered by federally funded reclamation projects is classified as

A) A farm cost subsidy.
B) Parity prices.
C) An income support program.
D) A price support policy.