ABM 100 Exam 1

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Refers to the difference between the cost of goods purchased and the price for which the firm sells those ‘enhanced’ goods.
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Value- Added
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Approximate # of all jobs in the U.S related to some aspect of the agri-food system
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20-25%
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Approximate value of total expenditures on food and alcohol in the U.S
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$1 to $1.4 trillion
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NOT a current trend in agri-food system
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Consumers dealing directly with processors and reducing the role of wholesalers.
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A grain elevator who buys small quantities of corn from farmers and sells large quantities of corn to the next player. _________: Example
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Assembler
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Institutional wholesalers typically do NOT sell to:
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food retailers.
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An apple processing plant that takes apples, turns them into apple juice and then stores the bottled juice in the refrigerated warehouse primarily adds what type(s) of value?
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Form and Time
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A commodity processor would most likely sell:
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Wheat flour to Kraft Foods. Cocoa Powder
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Any value-adding process that moves the product closer to final consumption.
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Economic Stage
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A barge that loads grain from elevators in Minnesota and transports it down the Mississippi River to the Gulf of Mexico is primarily adding:
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Place Value.
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Which tool would you use if you wanted to determine how much US consumers spend on all food and alcohol in a given year?
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The Food Bill.
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On average, Americans spend less than __% of their disposable income on food.
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10%
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Both real retail food prices and the Food Bill have been _____ over the past twenty years.
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Increasing.
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Approximately __% of total food expenditures is for food purchased away from home.
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50%
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____ incomes are leading to _____ total food expenditures.
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Increasing, increasing.
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Food manufacturers tend to be located __ agricultural production areas rather than near final consumption regions.
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Near.
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In general, Americans have one of the ___ shares of income spent on food in the world.
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Smallest.
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Beginning in the mid 1990’s, which item replaced food as the largest single item in the average family budget?
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Health care.
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In $100 of retail food, the value added BY FARMERS is approximately ___. Note- the value added by farmers is NOT the same thing as “farm value.”
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$6-$8.
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What would likely lead to a larger farm share of the food dollar?
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A food item that is highly perishable, like milk or eggs.
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Processors tend to locate their facilities ___ agricultural production regions.
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Near.
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Given the changing demographics in the US, what is very unlikely to occur in the US over the next twenty years?
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Baby boomers growing older and being less likely to eat out than younger Americans
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Consumption trend in the US agri-food system over the past 20 years or so
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The share of income that US consumers spend on food has been decreasing.
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Approximately what quantity of food is consumed away from home?
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1 out of every 3 meals (33%)
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Most farms in the US are ____
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Family owned and operated.
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A ____ in the price of fertilizer used in corn production will cause an ______ in the supply curve for corn.
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decrease, increase.
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If a surplus exists in the market, then there is a _____ pressure on price.
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Downward.
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If ice cream and popsicles are substitutes, one would expect that a decrease in the price of ice cream would cause the demand for popsicles to
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Decrease
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What country is considered one of the top countries from which the US IMPORTER agricultural and food products?
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European Union.
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In 2008, the world’s largest confectionery company was formed when the Mars Company acquired Wrigley for $23 billion. The growing market concentration in the confectionery industry may be a concern to consumers if the confectionery firms in the industry begin to:
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Exercise market power.
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Assume that an early frost destroys much of the fresh orange crop in Cali. This event will most likely affect the market for fresh oranges in the following way:
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Shift the supply curve, increasing the price and decreasing the quantity traded in the market.
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Demand Shifters:
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Prices of substitute goods, income, tastes and preferences.
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NOT a demand shifter:
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Price of the good.
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Large scale farms account for the ____ of agricultural production in the US
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majority
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If chips and salsa are complements and the supply of chips decreases, then the likely impact on the salsa market will be that:
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The demand for salsa will decrease.
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The US has a positive ____ trade balance.
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Agricultural
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The elasticity of demand for milk is -0.25. Therefore, an increase in the supply of milk would result in:
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A decrease in total revenue for milk producers
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Assume that the elasticity of demand for Pepsi is -1.15. Therefore, if the price of Pepsi increases, the total revenue of Pepsi producers will:
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Decrease.
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A cross-price elasticity would be used to measure the impact of a
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change in the price of a substitute
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Suppose that, when income increases by 10%, the quantity demanded of chicken increases by 2%. One can conclude that:
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Chicken is a normal good.
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Assume that the quantity demanded of apples increases by 12 percent when the price of apples decreases by 10 percent. What could be considered true?
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The total revenue of apple producers will increase when the supply of apples increases.
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Income elasticities may be _____ or ______
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positive, negative
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If tighter trade restrictions lead to a decrease in imported avocados from the US into Mexico, what will likely be the impact on the equilibrium price and quantity in the US avocado market?
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Quantity will decrease and price will increase.
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What agri-food player is typically closest to the final consumer?
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The manufacturer.
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An economic stage is:
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Any value-adding process that moves the product closer to final consumption.
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What would likely shift the supply of milk?
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A change in the price of hay used to feed dairy cows.
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Grocery wholesalers typically sell to
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Food retailers
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What player is least likely to add form value?
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The assembler and The wholesaler.
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T/F: Due to the biological nature of food production, agricultural firms are able to quickly contract and expand in order to adjust to price signals in the market.
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False
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T/F: The Food Bill measures all of the value added in the agri-food system by firms once the product leaves the domestic farmgate.
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False
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375 bags of pretzels were sold at $2.99 per bag. Later, 500 bags of pretzels were sold at $4.49 per bag. What likely occurred in the market?
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Demand increased.
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The share of total food expenditures for food purchased away from home is ______
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Increasing
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Approximately _____% of all agricultural production in the US is exported
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16-18%
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What items would NOT be included when calculating the Food Bill?
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Exports.
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What is a likely reason for the upward trend in the Food Marketing Bill?
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Increasing domestic population
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Assume that research reveals that the consumption of olive oil reduces the risk of coronary heart disease. The impacts of this event on the olive oil market will be to:
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Shift the demand curve, increasing both the price and the quantity traded in the market.
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Approximately what percentage of food expenditures is for food purchased away from home?
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50%
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A wholesaler who stores cereal boxes and then transports them to the retailer primarily provides which types of value?
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Time and Place Value
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What would NOT cause a change in the demand for peanut butter?
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A drought.
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If Coke and Pepsi are substitutes and the price of Coke decreases, then the likely impact on the Pepsi market will be that:
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The demand for Pepsi will decrease
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Approximately, what proportion of the Food Bill is considered “Farm Share”?
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15-20%
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T/F: In the 20th century, technology was the primary driver of increased agricultural productivity at the farm level.
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True
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The primary customer of the agricultural input supplier is the:
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Farmer
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Capital factors in agricultural production, such as the high degree of asset specificity, mean that agricultural production firms are ___ to adjust to market price changes than non-agriculture firms.
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Slower.
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Farms are becoming ___ specialized and ___ diversified.
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more, less.
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A current trend in the agri-food system is for the commodity processors to deal __ directly with producers and decrease the role of assemblers.
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more.
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Farmers account for approximately __% of the population.
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2%
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The clustering of fruit production and processing in the Traverse Bay area is an example of ___ in the agri-food system.
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Geographic concentration.
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If a new production technology reduces the cost of producing corn, the supply curve for corn is likely to ____.
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Increase.
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The share of income that consumers spend on food is _____.
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Decreasing.
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An increase in the price of pesticides used in tomato production will cause a shift in the __________ for tomatoes.
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Supply Curve.
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The ____ is the worlds largest importer of food and agricultural products.
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U.S.
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A potential benefit to consumers of market concentration in the agri-food system is that larger firms may be able to ____ per unit costs of production.
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Reduce.
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Both ____ and _____ prices respond to the same underlying supply and demand factors.
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Futures, Cash.
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A bakery estimates that the elasticity of demand for its bread is -0.5. If the bakery raises the price of its bread by 10%:
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Quantity demanded will decrease by 5% and total revenue will increase.
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Studies show that the cross-price elasticity of demand for bacon with respect the the price of eggs is -2.0. One can conclude that:
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Bacon and Eggs are complements.
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Suppose that in the previous decade, the income elasticity of butter was estimated to be about +.85. Today, the income elasticity for butter is-.14. This would imply that over the last few decades:
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Butter has changed from a normal good to an inferior good.
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If one wanted to estimate the impact on the beef market resulting from the drop in pork price caused by the H1N1 virus, one would need:
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The cross price elasticity of beef with respect to the price of pork.
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In November, a grain elevator manager buys some corn to store over the winter. He plans to sell the corn next March. In order to hedge the corn, he should:
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Sell a March contract in November.
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An inferior good is one that has:
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A negative income elasticity.
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If one wanted to estimate the impact on the egg market due to a new food safety bill that increases consumer confidence regarding the safe consumption of egg and egg products, one would need to know:
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The elasticity of supply for eggs.
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In futures markets, the seller of a contract:
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Agrees to make delivery according to the terms of the contract.
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Suppose the price of peas goes up by 8% and as a result the quantity demanded of carrots increases by 10%, ceteris paribus. Then the cross price elasticity of demand for peas with respect to the price of carrots, is ____ and peas and carrots would be considered ___.
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+1.25, substitutes.
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1990, economists estimated that the cross price elasticity between juice and pop was +1.14. Today, the dynamics in the beverage industry have changed and the new cross-price elasticity between juice and the price of soda is +.25. This would imply that, compared to the old estimate of +1.14, an increase in the price of soda pop would now lead to what type of shift in the demand for juice?
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A smaller shift, but still in the same direction.
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If the rain falls during the soybean growing season in Brazil and Argentina and improves the South American crop prospects, it is likely that:
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The cash and the futures contract price will both decrease.
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T/F: Futures markets are used by speculators to reduce price risk.
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False.
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If ice cream manufacturers want to increase their revenue from sales, they should ___ the price if they think that demand is ____.
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Increase, Inelastic OR decrease, elastic.
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The ____ a food product’s share is of the consumer budget, the ___ the elasticity of demand for that product.
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greater, greater.
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Income elasticities tend to be ____ for necessities than for luxuries.
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Smaller.
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Price discovery
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The interaction of the broad forces of supply and demand which establish the market price level.
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Most people who trade on the commodity futures market are _______.
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Speculators.
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The fewer the number of substitutes for a product, the more _____ is the demand for that product.
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Inelastic.
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Less than __% of all futures contracts typically result in actual delivery.
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5%
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A speculator neither ______ the commodity in the futures contract.
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owns nor intends to own
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If the elasticity of demand for apples is equal to -0.5, then a 10% increase in the price of apples will result in a 5% ____ in the quantity of apples.
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decrease.
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The more inelastic demand is, the ___ the change in quantity when the price changes.
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Smaller.
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The elasticity of demand is ___ elastic in the short run than in the long run.
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less.
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If the quantity of pears demanded decreases by 10% when the price of apples increases by 7%, then pears and apples would be considered ____.
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Complements.
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Most food products have an income elasticity between ____ and ____
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0 and +1.0
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In January 2013, JBS USA/JBS Foods Canada finalized its purchase of many Canadian beef processing plants owned by XL foods-Canada. Currently, JBS USA also has an exclusive agreement to purchase the US located XL good processing plants as well. However the purchase of the US plants is currently under investigation by US authorities due to the fact that the US beef industry is extremely concentrated. Of particular concern to the US authorities is that by allowing further concentration, this could allow JBS USA to negatively impact the beef market by: A) Exercising market power B) Lowering per unit costs of production and processing C) Increasing market competition D) Increasing economies of scale
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A) Exercising market power
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The largest single item in the food marketing bill is Labor T/F
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TRUE
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In general the food product travels less than ______ miles before it reaches the final consumer
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1300 miles
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The US has a negative agricultural trade balance
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FALSE
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If the farm share of the food dollar is decreasing, then farming is becoming less profitable T/F
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FALSE
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Farm share of the food dollar has been decreasing over time T/F
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TRUE
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Two players in the agri-food system who typicaly do not add form value are…
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the assembler and the wholesaler
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Which of the following is not an example of an instituitonal wholesaler? Gordon Food Service Sam’s Club Sysco US foods
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Sam’s Club
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Advertising by pepsi during the super bowl adds what type of value in the pepsi market channel? Time Form Place Possession
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Possession
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Firms who produce raw foods and agricultural products would be considered… Food Manufacturers Ranchers and Farmers Commodity Processors Food retailers
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Rancher and farmers
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Which agri-food player generally has the food manufacturer as its primary customer Farmer Processor Assembler Agricultural imput supplier
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Processor
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Due to its northern climate, michigan is relatively limited as to how many different types of commodities it can grow and is not very agricultually diverse T/F
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FALSE
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According the the ERS, lower income americans spend approximately six times more of their available income on food than higher income americans T/F
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FALSE
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It is expected that the proportion of us population under the age of 19 will decline as a share of the total population by 2020 T/F
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TRUE
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Over the next 20 years, citrus fruits are projected to be one of the food categories that experiences a decrease in per capita consumption T/F
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False
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Due to the relatively stable demographics in the US, there is not expected to be any significant changes in the tastes and preferences of food consumers over the next 10-20 years T/F
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FALSE
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The role of place value is increased when commodities are geographically limited as to where they can be grown T/F
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TRUE
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Increasing incomes are leading to more emphasis placed on product price and less emphasis placed on food quality attributes T/F
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FALSE
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Cargill Inc. a major player in the agri-food system, recently began to market food ingredients aimed at helping food companies produce healthier products that still taste good. These can be seen as… Functional food Convenience food Seasonal food Geographically concentrated food
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Functional Food
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Due to the changing demographics influencing the future of the US agri-food system, Increased importance will be placed on functional foods T/F
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TRUE
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A unique feature of the agri-food system is sesasonal production and consumption. one of the likely impacts of this seasonality is… Decreased storage costs for commodities and food products Stable commodity prices throughout the year Food manufacturers locating in close proximity to food retailers Additional form value in order to extend the shelf-;life of the food product
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Additional form value in order to extend the shelf-;life of the food product
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Farms are shifting away from production of homogeneous commodities towards production of commodities with specific end-use attributes T/F
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TRUE
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If a new production technology reduces the cost of producing corn, ceteris paribus, then the supply curve for corn is likely to decrease T/F
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FALSE Supply Curve is likely to INCREASE
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A potential benefit to consumers of market concentration in the agri-food system is that larger firms may be able exercise market power. T/F
answer

TRUE?
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One impact of technological advancements in the agri-food system has been the trend away from spot markets and towards tighter vertical coordination. T/F
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TRUE
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Most farms in the U.S. are considered non-family farms. T/F
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FALSE
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The European Union has typically been one of the top four export destinations for U.S. agricultural and food exports (i.e., where the U.S. sends agricultural and food products). T/F
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FALSE IN ONLY Imports
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The clustering of fruit production and processing in the Traverse Bay area is an example of market concentration in the agri-food system. T/F
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FALSE Geographic concentration
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If a surplus exists in the market, then there is downward pressure on price. T/F
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TRUE
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Geographic concentration reduces efficiencies in the market channel. T/F
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FALSE?
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In the 20th century, labor was the primary driver of increased agricultural productivity at the farm-level. T/F
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FALSE, technology is the primary driver of increased ag productivity
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Which of the following is false regarding the U.S. agri-food system? a. The U.S. is the world’s largest exporter and largest importer of agricultural and food products. b. Both Canada and Mexico are in the top three export destinations and import sources for U.S. agricultural and food exports. c. The U.S. has a negative agricultural trade balance. d. The U.S. exports as much as 25% of its agricultural production.
answer

c. The U.S. has a negative agricultural trade balance.
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If corn is an input into chicken production, then how would a low price level for corn impact the chicken market? a. The supply curve for chicken would shift, decreasing the price and increasing the quantity traded in the market. b. The demand curve for chicken would shift, decreasing both the price and the quantity traded in the market. c. The supply curve for chicken would shift, increasing the price and decreasing the quantity traded in the market. d. The demand curve for chicken would shift, increasing both the price and the quantity traded in the market.
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a. The supply curve for chicken would shift, decreasing the price and increasing the quantity traded in the market.
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According to a January 2013 New York Times article, Anheuser Busch InBev (the parent company of Budweiser Beer) is interested in Grupo Modelo (parent company of Corona Beer). One benefit to consumers from this type of merger is that the growing market concentration in the brewery industry may allow breweries to: a. Capture economies of scale. b. Exercise market power. c. Increase per unit costs of production and processing. d. None of the above.
answer

a. Capture economies of scale.
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In the event of a bumper crop (a larger than expected crop), why might Brazilian coffee producers destroy part of their harvest rather than put it on the market? a. To create upward pressure on coffee prices. b. To create a surplus. c. To create downward pressure on coffee price. d. All of the above.
answer

a. To create upward pressure on coffee prices.
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Which of the following is false regarding production agriculture (farm-level)? a. Farmers account for approximately 2% of the population. b. Agricultural commodities are geographically limited as to where they can be grown. c. Most farms in the U.S. are small, owner-operated farms. d. There are approximately 1 million farms in the U.S.
answer

d. There are approximately 1 million farms in the U.S.
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6.If ice cream and popsicles are substitutes, one would expect that a decrease in the price of ice cream would cause the demand for popsicles to: a. Increase. b. Decrease. c. Stay the same. d. Not enough information to tell.
answer

b. Decrease.
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If peanut butter and jelly are complements and the price of peanut butter increases, then the likely impact on the jelly market will be that: a. The quantity traded in the jelly market will increase. b. The price of jelly will decrease. c. The supply of jelly will increase. d. The demand for jelly will increase.
answer

d. The demand for jelly will increase.?
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Which of the following would most likely shift the supply of milk? a. A change in the demand for ice cream. b. A change in the price of milk. c. A change in the price of orange juice. d. A change in the price of hay used to feed dairy cows.
answer

d. A change in the price of hay used to feed dairy cows.
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Which of the following is not considered a trend in production (farm-level) agriculture? a. Farmers facing continual pressure to reduce costs and adopt new technologies. b. Increased productivity leading to increased dependence on global markets. c. Geographic clustering of agricultural production and processing. d. Relatively stable farm prices throughout the year.
answer

b. Increased productivity leading to increased dependence on global markets.
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Which of the following would most likely lead to an increase in the demand for orange juice? a. An increase in the supply of oranges. b. A drought in major orange producing regions. c. An increase in the price of apple juice. d. A decrease in the price of apple juice.
answer

c. An increase in the price of apple juice.

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