AGEC 105 Study Guide - Final Guide: Gross Domestic Product, Rib Eye Steak, Ceteris Paribus

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Chapter questions
Chapter 1
1. land, labor, and capital are examples of what three types of scarce resources?
a. LandNatural Resources
b. LaborHuman Resources
c. CapitalManufactured Resources
2. an agribusiness firm may undertake three alternatives:
buy cane sugar and manufacture various sugars and sweets, making a profit of $10 million
buy wheat and produce bread, rolls, and pastries, making a profit of $15 million
buy corn and produce Tex-Mex foods, making a profit of $12 million
a. which alternative should this agribusiness firm undertake? Why?
The agribusiness firm should buy wheat and produce bread, rolls, and pastries due to the fact that its profit of
$15 million is higher in relation to buying cane sugar and manufacturing various sugars and sweets with a
profit of $10 million or in relation to buying corn and producing Tex-Mex foods with a profit of $12 million.
b. The opportunity cost associated with these three choices is $12 million
3.
a. concern has been expressed on the part of the Obama administration about what should be the optimal tax
rate for those individuals who make more than $250,000 per year. This issue corresponds to what branch of
economics? Normative economics
b. What branch of economics is concerned with the effects of food safety (eg., E. coli) on consumer demand for
beef (i.e., what-if types of questions)? Positive economics
c. What branch of economics is concerned with the rate of inflation and the unemployment rate?
Macroeconomics
d. What branch of economics deals with the consumption expenditures of AGEC 105 students at Texas A&M
University? Microeconomics
4. To economists, the word marginal means change
5. Circle the correct answer. The U.S. economy represents what kind of economic system?
a. Capitalistic
b. Socialistic
c. Communistic
d. Mixed
6. Agricultural economics is an applied social science that deals with how producers, consumers, and societies use
scarce resources in the food and fiber sector.
7. Circle the correct answer. Economic reasoning that is true for one individual but not for society as a whole is referred
to as
a. Specialization
b. fallacy of composition
c. Opportunity cost
d. Normative economics
8. The Belford family owns a farm near San Angelo, Texas. Three alternative exist for how to use the farm:
a. Grow cotton. Cotton yield would be 500 pounds per acre. The price of cotton is $0.96 per pound and
production expenses are $285 per acre.
b. Grow wheat. Wheat yield would be 50 bushels per acre. The price of wheat is $7.25/bu and production
expenses are $210 per acre
c. Lease out the acres. The Belfords’ neighbor, Auld McDonald, will pay $200 per acre for leasing, but the
Belfords would still have expenses of $40 per acre
Based on this information, answer the following:
Which alternative should the Belfords undertake? Why?
they should undertake growing cotton. This option affords the highest profit per acre, $195 per acre. Growing
wheat yields a profit of $152.50 per acre, and Leasing acreage to Auld McDonald, the Belfords’ neighbor,
yields a profit of $160 per acre
Given your answer to the previous question, what is the Belfords’ opportunity cost per acre?
The opportunity cost associated with growing cotton is $160 per acre
What is the total economic cost per acre for your answer?
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The total economic cost per acre in growing cotton is equal to the production expenses incurred in choosing
this option ($285 per acre) plus the opportunity cost ($160 per acre). Thus, the total economic cost is equal
to $285+$160 or $445 per acre.
9. Most resources are best suited for a particular use. For example, climate and other conditions in Florida allow
resources to be used in orange production in lieu of wheat or potato production. What economic concept deals with
this issue? Specialization
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Chapter 2
1. The percentage of disposable income currently spend on food in the United States is about
a. 5
b. 10
c. 15
d. 20
2. Bill Toney, a hobby farmer from Virginia, has a net worth of $16 million. He has assets of $30 million and liabilities of
$14 million. (Net Worth=assets-liabilities)
3. The portion of food expenditures associated with the activities of firms beyond the farm gate is known as the
Marketing bill.
4. Suppose that the index of prices received by farmers for 2011 was 0.97 and the base year of this index was 2000.
Then,
a. Relative to 2011, farm prices were 97% higher in 2000
b. Relative to 2000, farm prices were 3% lower in 2011
c. Relative to 2011, farm prices were 3% lower in 2000
d. Relative to 2000, farm prices were 97% higher in 2011
5. Since WWII, there have been increases in productivity in the agricultural sector. This trend is due in part to
a. The substitution of capital for labor.
b. Increases in farm size.
c. The decline in the numbers of farms.
d. All of the above.
6. List the 5 sectors of the food and fiber industry:
a. Farm input supply sector
b. farm sector
c. processing and manufacturing sector
d. wholesale and retail sector
e. consumers
7. The major component of the marketing bill for food is labor
8. On average, U.S. farmers get approximately 20 cents of the dollar spend for food
9. If your nominal income for 2012 was $75,000 and the consumer price index for 2012 was 2.5, what is your real
income for 2012? Real income=Nominal income/CPI; so in this problem, real income=$75,000/2.5=$30,000
10. Develop the output indices of the Nouveau Cattle Slaughtering Plant (base year 2010).
Year
Pounds of cattle
slaughtered
Output index
2009
180,000
0.72
(180,000/250,000)
2010
250,000
1
2011
200,000
0.8
(200,000/250,000)
11. Which of the following is true? Circle all that apply.
a. Currently, the food and fiber sector accounts for about 12% to 15% of gross domestic product (GDP).
b. Off-farm income is important to agricultural producers today
c. 20% of farmers produce 80% of the agricultural output in the food and fiber industry
d. the food and fiber industry is responsible for one out of every ten jobs
12. Today, the number of farms in the United States is roughly in the order of 2 million.
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Document Summary

The agribusiness firm should buy wheat and produce bread, rolls, and pastries due to the fact that its profit of. Macroeconomics: what branch of economics deals with the consumption expenditures of agec 105 students at texas a&m. Microeconomics: to economists, the word marginal means change, circle the correct answer. Economic reasoning that is true for one individual but not for society as a whole is referred to as fallacy of composition: specialization, opportunity cost, normative economics, the belford family owns a farm near san angelo, texas. Three alternative exist for how to use the farm: grow cotton. Cotton yield would be 500 pounds per acre. The price of cotton is sh. 96 per pound and production expenses are per acre: grow wheat. Wheat yield would be 50 bushels per acre. The price of wheat is . 25/bu and production expenses are per acre: lease out the a(cid:272)(cid:396)es.

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