Arnold Quiz: Agriculture: Farmers’ Problems...

Quiz
Agriculture: Farmers’ Problems, Government Policies, and Unintended Effects

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1. During the 20^th century, the productivity of the U.S. agricultural sector has risen faster than that of the economy as a whole. As a result, the average farmer now feeds: a. 8 people.
b. 15 people.
c. 25 people.
d. 35 people.
e. 50 people.

2. In the typical agricultural market, increased U.S. agricultural productivity has had which of the following effects?: a. A rise in supply, followed by a fall in the equilibrium price.
b. An increase in demand because of the lower price.
c. A fall in consumer expenditures because of a high price elasticity of demand.
d. A fall in farmers' income because of an unfavorable price elasticity of demand and a high income elasticity of demand (which, over time, has caused demand to rise less rapidly than supply).
e. All of the above.

3. Which of the following statements about elasticity of demand is correct?: a. Given an income elasticity of 0.3 and a 10% rise in income, the quantity demanded of a normal good rises by 3%.
b. Given an income elasticity of -0.3 and a 10% fall in income, the quantity demanded of an inferior good falls by 3%.
c. Given an income elasticity of 0.3 and a 20% rise in a normal good's quantity demanded, the change in income must have been +6 %
d. Given an income elasticity of -0.3 and a 20% fall in an inferior good's quantity demanded, the change in income must have been -6 %.
e. None.

4. Which of the following statements about elasticity of demand is correct?: a. Given an income elasticity of demand of 2, a 5% rise in income implies a 2.5% rise in quantity demanded.
b. Given a price elasticity of demand of absolute 2, a 5% rise in price implies a 2.5% fall in quantity demanded.
c. Given a 20% fall in price and a 7% rise in quantity demanded, the implied price elasticity of demand has an absolute value of 2.86.
d. Given a price elasticity of demand of absolute 3.1 and a 4% decline in quantity demanded, the implied change in price is +1.29%.
e. All of these statements are correct.

5. Which of the following statements about U.S. agricultural markets is correct?: a. Demand tends to be price inelastic.
b. Supply tends to change greatly from year to year due to the weather.
c. Supply tends to rise over time due to increasing productivity.
d. Revenue tends to be volatile from year to year, mainly as a result of (a) and (b).
e. All of these statements are correct.

6. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct?: a. In the absence of governmental intervention, the equilibrium price is 0B.
b. In the absence of governmental intervention, the equilibrium quantity is 0G.
c. In the absence of governmental intervention, farmers' total revenue is 0BFG.
d. In region DF on the demand line, the (absolute value of the) price elasticity of demand is <1, as shown by the fact that a fall in price, although raising quantity demanded, lowers total revenue.
e. All of these statements are correct.

7. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct?: a. In region DI on the demand line, the (absolute value of the) price elasticity of demand is <1, as shown by the fact that a rise in price, although lowering quantity demanded, raises total revenue.
b. If the government establishes a minimum support price of 0C, consumers pay a lower price than before the intervention.
c. If the government establishes a minimum support price of 0C, farmers receive a higher price than before the intervention.
d. If the government establishes a minimum support price of 0C, farmers' total revenue rises.
e. All of the above.

8. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct, if the government establishes a minimum support price of 0A and promises to buy up any surplus?: a. Demand falls from F to D, while supply rises from F to H.
b. The total revenue of farmers rises from 0BFG to 0ADE.
c. The total expenditure of consumers rises from 0BFG to 0ADE.
d. Taxpayers end up spending AHIC on corn.
e. None of the above.

9. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct, if the government establishes an acreage allotment program to restrict supply?: a. If farmers take their least productive land out of production and then farm the allowable remaining acreage more intensively, supply may remain unchanged.
b. If supply does fall to pass through point D, farmers' total revenue rises from 0BFG to 0ADE.
c. If supply does fall to pass through point D, price rises from 0B to 0A, a surplus of DH results, and taxpayers end up buying $DHJE of corn.
d. If supply does fall to pass through point D, consumers' total expenditures fall, along with the quantity demanded and bought.
e. Only (a) and (b).

10. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct, if the government establishes a marketing quota system to restrict supply?: a. If farmers take their least productive land out of production and then farm the allowable remaining acreage more intensively, supply may remain unchanged.
b. If supply does fall to pass through point D, farmers' total revenue rises from 0BFG to 0ADE.
c. If supply does fall to pass through point D, price rises from 0B to 0A, a surplus of DH results, and taxpayers end up buying $DHJE of corn.
d. If supply does fall to pass through point D, consumers' total expenditures fall, along with the quantity demanded and bought.
e. If supply rises due to favorable weather, the price may well end up below 0B.

11. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct, if the government establishes a soil bank program to restrict supply?: a. If farmers take their least productive land out of production and then farm the allowable remaining acreage more intensively, supply may remain unchanged or even rise.
b. If supply does fall to pass through point D, price rises from 0B to 0A, and taxpayers pay an additional amount, not shown.
c. If supply does fall to pass through point D, consumers' total expenditures rise from 0BFG to 0ADE, while they pay an additional amount as taxpayers (not shown).
d. If supply rises due to favorable weather, the price may well end up below 0B.
e. All of the above statements are correct.

12. Consider Figure 25.1. It represents the market for corn. Which of the following statements about this market is correct, if the government establishes a target price system to support farmers' income?: a. If a target price of 0A is set, farmers supply quantity AH = 0J.
b. If a target price of 0A is set, a surplus of DH is created and taxpayers end up paying $DHJE for corn that the government stores.
c. If a target price of 0A is set, there will be no surplus, and taxpayers end up paying $DHJE for corn that they have already bought for 0CIJ.
d. If a target price of 0A is set, consumers of corn receive quantity 0G at a price of only 0C, because farmers receive an additional amount of subsidy payments from the government.
e. Under this system, the government inevitably incurs storage costs for crop surpluses bought up.

13. If an agricultural price support program succeeds in making farming more profitable, we can expect: a. a subsequent decrease in the sales price of farm land.
b. a subsequent increase in the sales price of farm land.
c. a subsequent decrease in the rental price of farm land.
d. no subsequent change in the sales price, but a decrease in the rental price of farm land.
e. no subsequent change in the rental price, but an increase in the sales price of farm land.

14. The Federal Agriculture Improvement and Reform Act of 1996: a. attempts to subsidize farmers' income indirectly, through market manipulation.
b. institutes above-equilibrium price floors for some crops.
c. institutes supply-restricting acreage allotments for other crops.
d. repeals target pricing and deficiency payments to farmers.
e. is correctly described by all of the above.

15. Under the Federal Agriculture Improvement and Reform Act of 1996,: a. farmers receive deficiency payments per unit produced that equal target price minus market price.
b. farmers receive production flexibility contract payments per unit produced that equal target price minus market price.
c. farmers receive production flexibility contract payments that equal contract acreage times 0.85 times yield per acre times crop payment rate, but are limited to $40,000 per person.
d. farmers receive (a), (b), or (c), depending on the crop.
e. all of the above occur.

16. Under the FAIR Act of 1996,: a. U.S. farmers who want to get government subsidy payments must contract to limit themselves to the production of a single crop forever (which explains why the payments are called production flexibility contract payments).
b. U.S. farmers who want to get government subsidy payments must agree to be flexible and produce a different type of product every year (which explains why the payments are called production flexibility contract payments).
c. federal farm spending, instead of farmers' income, is being stabilized.
d. federal farm spending will vary considerably (and unpredictably) from year to year.
e. both (b) and (c) are expected to occur.

17. Former U.S. agricultural policies tended to damage the natural environment because: a. farmers had an incentive to plant the same subsidized crop year after year.
b. the habit noted in (a) discouraged crop rotation, which is necessary to break pest cycles and promote soil conservation.
c. the scenarios noted in (a) and (b) led to greater use of pesticides that damaged air, water, and soil.
d. farmers had an incentive never to allow acreage to be idle, which is necessary to break pest cycles and promote soil conservation.
e. of all of the above.

18. Agricultural income support programs tend to pass easily in the U.S. Congress, despite the fact that relatively few farmers gain at the expense of much larger numbers of consumers and taxpayers (all of whom are voters as well). This is explained by: a. the fact that the subsidy payments are only made in the form of nonrecourse loans.
b. the fact that the benefits of income support programs are highly concentrated, while their costs are widely dispersed.
c. the fact that farmers have access to futures markets in which they can agree now to sell specified quantities of specified crops at a future date and to do so at a price specified now.
d. the fact that those who consume the crops are not the same persons who pay the taxes that finance the subsidies.
e. all of the above.

19. The Commodity Credit Corporation (CCC) makes nonrecourse commodity loans to farmers. This process involves which of the following?: a. A farmer pledges a certain quantity of a commodity, such as 1,000 bushels of corn.
b. Given a current loan rate of $3 per bushel, the farmer receives a $3,000 loan.
c. If the market price of corn rises above $3 per bushel, the farmer can repay the loan with interest, reclaim the corn, and sell it; if the market price stays at or below $3 per bushel, the farmer can forfeit the corn and keep the loan.
d. All of the above.
e. None of the above.

20. Which of the following is a correct statement about the 1996 FAIR Act?: a. The act has moved U.S. agriculture from a system of price supports, acreage restrictions, and target prices to a completely free market.
b. The act still subsidizes farmers' incomes, but does so more directly than previous programs did.
c. The act removed strict import limits on sugar that had created a domestic (raw) sugar price double the world market price.
d. The act drastically changed the former dairy and peanuts programs, thereby saving consumers $1 billion a year.
e. All of the above are correct.