AAE 340 Test 1 Explanations

            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
    1. With elastic demand, an increase in quantity and 
       a reduction in price will increase total revenue.   


To Question 1

To Question 2







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   2. elasticity of demand = % change in quantity
                               % change in income 
  
                       0.2 = % change in quantity
                                      10%   

      % change in quantity = 2%    

To Question 2

To Question 3







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   3. The speed of adjustment shows producers'
      response to a change in price.  A relatively
      large short run elasticity of supply indicates 
      a rapid rate of adjustment.  Thus the elasticity 
      of supply indicates the speed of adjustment.   

To Question 3

To Question 4







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   4. Technological change may result from a reduction
      in average costs.  Also, the marginal cost curve
      may shift down and out expanding supply.   

To Question 4

To Question 5







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   5. Open space, which is of value to urban residents,
      is an example of a positive externality.  

To Question 5

To Question 6







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   6. Soil erosion reduces productivity of the land.   

To Question 6

To Question 7







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   7. Reducing underground water supplies in the current
      period reduces supplies available for future uses 
      and limits future economic activities.   

To Question 7

To Question 8







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   8. Restricting chemical use may increase cost of 
      production, limiting quantity supplied and 
      increasing farm product prices.   

To Question 8

To Question 9







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   9. An increase in the cost of marketing services may
      result in higher prices to consumers and lower 
      prices for farmers.  

To Question 9

To Question 10







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   10. An increase in quantity will increase total 
       revenue in a market with elastic demand.   

To Question 10

To Question 11







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   11. A price ceiling with rising demand results in 
       quantity demanded increasing but no increase 
       in quantity supplied.  With quantity demanded
       being greater than quantity supplied, a 
       shortage results.   

To Question 11

To Question 12







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   12. A reduction in the cost of marketing services may
       reduce price to consumers and raise price for
       producers.   

To Question 12

To Question 13







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   13. Optimum investment occurs where marginal cost 
       equals marginal benefit.  Any other criteria 
       does not result in maximum net benefits.  

To Question 13

To Question 14







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   14. Optimum investment occurs where marginal cost
       equals marginal benefit.  Any other criteria 
       does not result in maximum net benefits.   

To Question 14

To Question 15







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   15.    Producer surplus 
        - Fixed cost      
          Profit
          
          Profit + Fixed cost = Producer surplus  

To Question 15

To Question 16







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   16. Risk averse producers prefer stable income to 
       risky income, therefore they attempt to reduce 
       risk.  

To Question 16

To Question 17







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   17. Consumer surplus is larger with a target price 
       or price guarantee than with production control,
       price support or paid diversion.   

To Question 17

To Question 18







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   18. Production control requires only administrative
       costs; no other government payments are required.   

To Question 18

To Question 19







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   19. Production control gives less producer surplus
       than price support, paid diversion, target price
       or price guarantee.   

To Question 19

To Question 20







            
         Since you have not identified the correct 
         answer, this explanation may be helpful. 
   20. Benefits of government programs are capitalized
       into land prices. Thus land owners benefit from 
       higher land prices.  

To Question 20

To Question 1







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