Test Bank Docx Farm Policy Stock Chapter 14

c14; Chapter 14: Farm Policy

Learning Objectives:

1. Describe the history and evolution of government agricultural policy
2. Demonstrate how inelastic demand influences agricultural goods’ prices
3. Describe the main components of U.S. farm policy
4. Demonstrate the impacts of price supports in agriculture
5. Illustrate the impacts of supply restriction policies
6. Illustrate the impacts of demand enhancement policies
7. Assess the costs and benefits of recent U.S. farm policy

Multiple Choice

1. Historically, the number of farms have
   1. decreased but the number of workers have increased.
   2. decreased and the number of workers have decreased.
   3. increased but the number of workers have decreased.
   4. increased and the number of workers have increased.

LO-1

Level: Easy

1. A contributing factor for the change in the number of farms has been
   1. increased specialization in agricultural production.
   2. improved technology.
   3. greater advances in farming techniques.
   4. the advancement of pivot irrigation.

LO-1

Level: Easy

1. Economist estimate that between 1950 and 2000 the average amount of output per hour worked by a farmer was
   1. 6 times higher in 2000 than in 1950.
   2. 12 times higher in 2000 than in 1950.
   3. 18 times higher in 2000 than in 1950.
   4. 22 times higher in 2000 than in 1950.

LO-1

Level: Easy

1. Supply-side explanations for the level of agricultural output in the U.S. today includes
   1. technological changes and innovations.
   2. increased productivity.
   3. increases in the labor force.
   4. technological changes and innovations and increased productivity.

LO-1

Level: Easy

1. Primary drivers behind the level of agricultural output in the U.S. are all of the following except
   1. labor-saving processes.
   2. technological innovations.
   3. improved crop and livestock techniques.
   4. subsidies from the U.S. government.

LO-1

Level: Easy

1. Demand factors of the agricultural markets include
   1. population size and incomes of consumers.
   2. population size and age of consumers.
   3. incomes of consumers and consumer preferences.
   4. incomes of consumers and prices of related goods.

LO-1

Level: Easy

1. Historically, a significant number of current U.S. government involvement in the agricultural industry originated
   1. with our founding fathers in the 1800s.
   2. in the Great Depression era of the 1930s.
   3. due to the stagflation of the 80s.
   4. in the economic boom of the 1990s.

LO-1

Level: Easy

1. Demand for agricultural products tend to be
   1. relatively price elastic.
   2. relatively price inelastic.
   3. relatively unitary elastic.
   4. perfectly inelastic.

LO-2

Level: Easy

1. Characteristics that have contributed to existing farm policy include the
   1. elasticity of the demand for agricultural products.
   2. inelasticity of the demand for agricultural products.
   3. elasticity of the supply of agricultural products.
   4. inelasticity of the supply for agricultural products.

LO-2

Level: Easy

1. A bumper crop of a specific agricultural product will result in
   1. lower prices and decreases in total revenue.
   2. higher prices and increases in total revenue.
   3. lower prices and increases in total revenue.
   4. higher prices and decreases in total revenue.

LO-2

Level: Moderate

1. Paid to producers, this typically is designed to provides assistance and supplement income.
   1. Farm tax
   2. Subsidy
   3. Price ceiling
   4. Price support

LO-3

Level: Easy

1. Components of agricultural policies include all of the following except
   1. Price supports
   2. Supply restrictions
   3. Supply enhancements
   4. Income supports

LO-3

Level: Easy

1. Which of the following statements is correct?
   1. Price supports results in a shortage of the good
   2. A subsidy results in an over allocation of resources to farm products
   3. Price supports results in an over allocation of resources to farm products
   4. Income supports has a direct impact on agricultural production

LO-3

Level: Difficult

1. As a result of a price support on an agricultural product
   1. Consumers will pay a higher price
   2. Consumers will pay a lower price
   3. Consumers will increase their quantity demanded
   4. Consumers will increase their demand

LO-4

Level: Moderate

1. Which of the following statements is correct?
   1. Government agricultural policies are often designed to increase demand and decrease supply of agricultural products.
   2. Government agricultural policies are often designed to decrease demand and increase supply of agricultural products.
   3. Government agricultural policies are often designed to increase demand and increase supply of agricultural products.
   4. Government agricultural policies are often designed to decrease demand and decrease supply of agricultural products.

LO-3

Level: Moderate

Reference: Use the graph below to answer questions 16-21.

1. Refer to the graph of an agricultural product. A possible price support would be represented by
   1. Price P₀
   2. Price P₁
   3. Price P₂
   4. Either Price P₁ or Price P₀

LO-4

Level: Difficult

1. Refer to the graph of an agricultural product. Without the price support consumer surplus is represented by the area of
   1. P₀FA
   2. P₁FB
   3. GP₀A
   4. P₁BHG

LO-4

Level: Difficult

1. Refer to the graph of an agricultural product. Without the price support producer surplus is represented by the area of
   1. P₀FA
   2. P₁FB
   3. GP₀A
   4. P₁BHG

LO-4

Level: Difficult

1. Refer to the graph of an agricultural product. With the price support enacted the consumer surplus is represented by the area of
   1. P₀FA
   2. P₁FB
   3. GP₀A
   4. P₁BHG

LO-4

Level: Difficult

1. Refer to the graph of an agricultural product. With the price support in place the producer surplus is represented by the area of
   1. P₀FA
   2. P₁FB
   3. GP₀A
   4. P₁BHG

LO-4

Level: Difficult

1. Refer to the graph of an agricultural product. Identify the deadweight loss to society created by the implementation of a price support.
   1. Area ABC
   2. Area HBA
   3. P₀FA
   4. P₁FB

LO-4

Level: Difficult

1. As a result of a price support
   1. Consumers lose
   2. Consumers gain
   3. Consumers are not affected by a price support
   4. Society gains

LO-4

Level: Moderate

1. Acreage controls and soil conservation are programs enacted to
   1. Increase elasticity of agricultural products
   2. Decrease elasticity of agricultural products
   3. Increase supply of agricultural products
   4. Decrease supply of agricultural products

LO-5

Level: Moderate

1. The type of agricultural policy represented by the above graph is best defined as a

• 1. price support.
  2. supply restriction.
  3. demand enhancement.
  4. income support.

LO-5

Level: Moderate

1. The Conservation Reserve Program (CRP) is an example of a(n)
   1. price support.
   2. supply restriction.
   3. demand enhancement.
   4. income support.

LO-5

Level: Moderate

1. The Food for Peace program
   1. Is a demand enhancement policy designed to assist in the distribution of surplus U.S. agricultural output
   2. Is a supply restriction policy designed to assist in the distribution of surplus U.S. agricultural output
   3. Is an income support policy designed to assist in the distribution of surplus U.S. agricultural output
   4. Is a supply support policy designed to assist in the distribution of surplus U.S. agricultural output

LO-6

Level: Easy

1. In addition to assisting agricultural producers, this agricultural program is targeted toward low-income groups and foreign countries.
   1. Price support
   2. Supply restriction
   3. Demand enhancement
   4. Income support

LO-6

Level: Easy

1. Advocates of farm programs argue the policies are necessary to
   1. Preserve the incomes of traditional family farms and rural communities
   2. Stabilize demand
   3. Increase supply which allows for higher prices
   4. Decrease supply which allows for higher prices

LO-7

Level: Easy

1. In recent years, farm household income has __________________ the income of the average U.S. household
   1. Fallen behind
   2. Equaled
   3. Exceeded
   4. Replicated

LO-7

Level: Easy

1. Which of the following statements is true?
   1. Agricultural programs are largely designed to decrease subsidies to the industry.
   2. Approximately half of the agriculture industry in the United States received support from governmental farm programs.
   3. The full costs and benefits of agricultural policies and program are easily known and calculated.
   4. Agricultural policies and programs primarily generate benefits.

LO-7

Level: Moderate

1. Critics of farm programs cite that they
   1. Support large farmers more than smaller farmers
   2. Subsidize the producers at the expense of the consumers
   3. Restrict competitiveness of U.S. producers
   4. All of the above are criticisms of farm programs

LO-7

Level: Easy

1. Farm programs such as those found in the United States
   1. Restrict output
   2. Cause an inefficient use of resources by over allocating resources to the agricultural industry
   3. Increases productivity
   4. Cause the relative price of agricultural land to stagnate

LO-7

Level: Moderate

1. Economists estimate that current commodity programs reduce U.S. net income by about $5 billion annually because of
   1. Misallocated resources
   2. Stagnate farmland prices
   3. Higher taxes
   4. Increased competitiveness

LO-7

Level: Easy

Essay

1. Explain how the supply-side and the demand-side factors work together to generate equilibrium prices and quantity.

The supply side factors also indicate an increase in supply. An increase in productivity and technological innovations that save labor and increases output provides for an increase in supply, which results in a decrease in equilibrium price and an increase in equilibrium quantity. (↑S: ↓P_E↑Q_E)

Together, these two forces provide mixed predictions. While an increased in agricultural output can be expected, the size of the two changes will be needed to determine the effects on price. If the demand shift is larger than the supply shift, prices will increase. If the supply shift is larger, prices will fall. The shifts have opposite effects on equilibrium prices. However, because we have seen a decrease in inflation-adjusted prices of agricultural goods and services, it implies that the supply shift must be the larger of the two shifts.

LO-5/LO-6

Level: Moderate

1. Explain the effects and impact of a supply restriction on prices and quantity from a government enacted supply restriction. Provide a graph to illustrate your answer.

LO-5

Difficulty: Difficult

1. Who are the winners and losers from a price support?

LO-4

Difficulty: Moderate