- - AGRICULTURAL CORE CURRICULUM - - (CLF1000) Advanced Core Cluster: AGRICULTURAL BUSINESS MANAGEMENT (CLF1200) Unit Title: Economic Principles ____________________________________________________________________________ (CLF1249) Topic: UNIT EXAM Time Year(s) 1 Hour 3 / 4 ____________________________________________________________________________ TOPIC PRESENTATION: UNIT EXAM True - False ______1. Farm production directly employs nearly 10% of employed labor nationally. ______2. The gross national product measures the total market value of all final goods and services produced in the economy during a year. ______3. California ranks number 2 in total farm production in the United States. ______4. Scarcity means that there is not enough of something. ______5. Economics is the allocation of scarce resources between competing concerns. ______6. Agricultural economics is the study of economics applied only to the production of food. ______7. Macroeconomics studies the economic system as a whole rather than individual firms as microeconomics does. ______8. Opportunity cost is a measure of what is given up when one thing is chosen instead of another. ______9. Supply and demand determine fixed costs. _____10. One of the questions that economics tries to answer is what to produce. _____11. Supply is the amount of a good or service that producers are willing and able to provide at various prices at a given time and place. _____12. Demand is the amount of a good or service that buyers are willing purchase at a given price. _____13. The equilibrium price is at the intersection of the supply and demand curves. _____14. Two major factors that may shift a demand curve are consumer income and population growth. _____15. When price is higher than the equilibrium price, a surplus will develop. Choose the best answer. 16. When supply of milk increases, all other things remaining equal, what happens to the price: a. Stays the same b. Decreases c. Increases 17. An increase in demand is graphically illustrated by: a. A shift up and to the right. b. A shift up and to the left. c. A shift down and to the right. d. A movement along the demand curve. 18. ___________is a set of various prices and corresponding quantities of a particular agricultural commodity that would be purchased at each price. a. A supply schedule b. An elasticity schedule c. A quantity schedule d. A demand schedule 19. The amount or quantity of a good or service that would be purchased at a given price and at a specific time and place is called___________. a. Quantity demanded b. Supply c. Demand d. Utility 20. The diagram shown below represents which of the following curves? (Connect the three points.) a. Supply | X | b. Demand | X | c. Equilibrium | | X d. Unit elasticity |_______________________ Connect the three points. 21. An increase in the supply of an agricultural product results in a shift of the supply curve ___________________. a. Downward to the left b. Downward to the right c. Upward to the left d. Upward to the right 22. As the price of an agricultural product increases, the supply __________. a. Decreases b. Equalizes c. Increases d. Remains unchanged 23. List 3 factors that can shift the supply curve. ________________________________ ________________________________ ________________________________ 24. List the five types of costs that are classified as fixed. ____________________________ _____________________________ ____________________________ _____________________________ ____________________________ 25. Costs that change with the level of production are known as _______________________ costs. 26. Why would it pay to operate if total costs are not covered? 27. List four costs that are generally variable. ____________________________ _____________________________ ____________________________ _____________________________ 28. Why is it important to know the average cost of production per unit (that it costs $3.40 per cwt to raise wheat, for example)? 29. If a greenhouse has fixed costs of $5000 per year and variable costs per plant are $3.00, how many plants would it take to break even if the plants can be sold for $4.00 each? ________________________________ If they could be sold for only $3.50 per plant, how many would need to be raised?_______________________ 30. If the total cost to produce an acre of tomatoes is $1500 and the yield is 30 tons, what is the break-even price? _____________________ 31. Explain the principle of diminishing returns from both an economic and a total production standpoint. 32. Define each of the following: a. Total Product (TP) - b. Marginal Value Product (MVP) c. Average Product (AP) - d. Total Revenue (TR) - e. Marginal Revenue (MR) - f. Total Cost (TC) - g. Marginal Cost (MC) - 33. What does MC = MR mean and why is it important? 34. What is a diversified farm or agricultural business? Give an example. 35. What is a specialized farm or agricultural business? Give an example. 36. What is meant by a competitive relationship? 37. Identify the following as competitive, supplementary, or complementary. a. Wheat and barley ______________________________ b. Beef cattle and sheep ______________________________ c. Tomatoes and wheat ______________________________ d. Vegetables and flowers ______________________________ (the flowers are planted to attract insects) e. Crop rotations ______________________________ 38. What is the difference between risk and uncertainty? 39. List five ways that risk or uncertainty can be minimized. UNIT EXAM - INSTRUCTOR KEY 1. F 2. T 3. F 4. T 5. T 6. F 7. T 8. T 9. F 10. T 11. T 12. F 13. T 14. T 15. T 16. b. Decreases 17. a. A shift up and to the right 18. d. A demand schedule 19. a. Quantity demanded 20. a. Supply 21. b. Downward to the right 22. d. Remains unchanged 23. Change in the price of inputs. Change in production techniques. Change in prices of other products. Change in expectations of price. Change in government programs. 24. Depreciation Repairs Interest Insurance (Except for crop insurance) Taxes (Except for income and sales taxes which are variable costs) 25. variable costs. 26. As long as all variable costs are covered, some of the fixed costs are also being paid. This allows production to continue in the short run. 27. List four costs that are generally variable. Fertilizer Seed Labor Feed Fuel, Crop Insurance, Income Tax. 28. This information will tell you what the lowest price is that you could sell the item for and still make money. 29. $4.00 each/5,000 plants $3.50 each/10,000 plants 30. $50/ton 31. From an economic standpoint, a point is reached where marginal cost (MC)= Marginal Return (MR). Beyond this point, increased production returns fewer dollars than it costs to produce an item. From a production standpoint, as additional variable input is added at some point production will reach a peak and start to decrease. 32. a. The total amount produced b. The amount added to total value when an additional unit of input is used. c. The amount of output produced divided by he total number of input units d. The total number of dollars received for the level of production e. The additional dollars received when an additional unit of output is produced and sold f. The cost of all inputs added, both fixed and variable. g. The cost of producing an additional unit of output 33. Marginal Cost = Marginal Return This is important because this is the point at which the profit maximizing level of output has been reached. If production continues beyond this level, profits will decrease. 34. Diversification is a business practice of producing a number of different commodities in order to use resources more efficiently or to reduce risk. One example would be a lettuce grower growing a variety of other vegetables at the same time of the year. 35. Specialization is a business practice of producing one or a small number of commodities. One example would be a greenhouse operation that grows only poinsettias. 36. Two or more commodities that are competing for the same resources: land, labor, capital, or management. An increase in the production of one commodity will cause a decrease in the production of the other. 37. Identify the following as competitive, supplementary, or complementary. a. Competitive b. Competitive c. Complementary d. Supplementary e. Complementary 38. In risk, the outcome is unknown but the probability of different outcomes is known. In uncertainty, the probabilities of the different outcomes are unknown. 39. Insurance Diversification Production Contracts Future Contracts, Options, Forward Contracts Maintaining Liquidity Selection of low-risk/low-uncertainty enterprises 12/5/91 LM/GB/sg #%&C