Ag Econ 1042
First Exam, 140 points
February 17, 2011
Name _____KEY_____________________
8 a.m. Section
Matching are valued at one point each
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Consumption
Economics
Economic growth
Taxes
Marginal
Government
Demand
Price
Property rights
Market
Producer surplus
Unemployment
Substitute
Trade
Utility
Supply
Consumer surplus
Profit
Deficit
Equilibrium
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Its price will rise when other similar goods have price rise
Sellers schedule of prices and quantities
Study of decision making
Lowest opportunity cost for buyers
Necessary for free markets
Area below demand and above price
Attracts resources
Measure of scarcity/relative value
Revenue of the government
Source of income
Value to an individual
Referee for markets rather than participant
GDP increase
Increases with negative economic growth
Where exchange is arranged
Nearly 70% of GDP
Change or edge
Annual shortfall of revenues compared to costs
No tendency to change
Net value to sellers
The following questions are valued at 10 points each
21. Debt and deficit basics:
a) We would expect federal deficits to increase when there is a
_recession________________________.
b) Will cutting discretionary spending lead to reducing the federal debt?
No
c) U.S. government debt = _Σ of deficits and surpluses_________________________.
d) Is the U.S. government deficit the biggest in absolute terms for fiscal 2011?
Yes
e) Will reducing taxes directly reduce government debt?
No
1
22. Show with a diagram an increase in income to sellers in the labor market.
a) Show the change in consumer surplus on the diagram.
b) What situation would have to exist for a minimum wage proposal to directly increase
income to sellers of labor?
Inelastic demand
c) Who are the sellers in the labor market?
Workers
d) What would change on the diagram if the productivity of workers increase? (Do not
draw this.)
S↑
$/Q
S
CS+
Revenue rectangle needs to
be noticeably larger
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CSP1
D1
D
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True/False – one point each
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T
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T
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F
F
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F
F
T
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32.
The current unemployment rate has declined recently to 9%.
The Leading Indicators suggest what may happen in the U.S. economy in the near
future, three-six months.
Economic growth in the U.S. exceeded 3% during the fourth quarter of 2010.
If pork demand increases and the market supply decreases, equilibrium price will
fall.
An increase in quantity supplied can be caused by a decline in production costs.
Interest rates will decrease as consumers and businesses demand more money.
As the price of leather increases, the demand for leather belts will decrease.
Demand is always positively sloped.
A rising price is a signal to sellers encouraging less production.
Choosing the option with the lowest opportunity cost is the same as choosing the
option with the highest net benefit.
2
F
T
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T
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F
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T
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F
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T
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F
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T
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F
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51.
52.
Consumer surplus is the difference between the price of an action and its cost.
A recession occurs when economic growth turns negative for an extended period
of time (perhaps six months or more).
Market transactions are how income is created in a market economy.
Gains in productivity are one of the primary causes of economic growth in
developed countries.
Emerging economies can grow faster than established economies like the U.S. or
Europe.
Supply is equal to demand at various prices in a market equilibrium.
Demand would decrease in the current period, if suppliers expected input costs to
go up in the future.
Supply represents the highest opportunity cost facing a seller.
No one ever buys anything if prices are a little above the market equilibrium
price.
An increase in demand means that consumers are willing to pay more for the
same quantity.
Incentives are used to change our behavior.
Inflation can be the downside to fast economic growth and may slow growth over
long periods of time.
Demand represents the lowest opportunity cost of buyers at all the price-quantity
combinations.
When we buy greeting cards at the University bookstore, we make ourselves
worse off.
If you were willing to pay $40,000 for a stylish minivan but actually paid
$30,000, you received no consumer surplus.
Unemployment is unlikely to fall much without economic growth of
approximately 3% or greater.
It is good for the economy when households increase savings at the beginning of
a recession.
Gross domestic product understates the actual production of goods and services in
the U.S.
Corn supply shifted left during the last year causing a big price rise.
Rising commodity prices may be a prelude to an increase in overall inflation.
Short answers are valued at five points each
53. If demand for money is inelastic then the impact of an interest rate change on consumption
is likely to be ___Small (smaller than IR change)_____________________.
3
54. On one graph show why Wal-Mart might be able to offer lower prices because of lower
input costs or more efficient inventory management.
$/Q
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S1
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55. Diagram what has been happening in the corn market.
S1
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56. At Mizzou, the number of parking spaces has increased and the price of parking has also
increased. Diagram the situation completely and accurately.
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57. An increase in the overall price level or prices in general is called what?
Inflation
58. What is market value of all final goods and services in a country?
GDP (gross domestic product)
59. If the government reduces spending what else will be necessary to actually reduce
government debt? Name both possibilities.
1. Increase taxes
2. Economic growth
60. Diagram what happens in the market for smart phones as we are willing and able to buy
more smart phones. Show final consumer and producer surplus.
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61. When is the best time to increase government spending if maintaining economic growth is
our goal?
During or near recession
62. What are the two general reasons that the price of gasoline is rising?
D ↑ and/or S ↓
63. What are the four components of GDP?
Consumption, Investment, Government, Net Exports (C I G X0
5
64. When commodity inventories become very low, what happens to price?
Rises
65. What are the three biggest portions of the U.S. government’s budget?
1. Social Security
2. Health Care
3. Defense
66. Diagram the result in an industry where workers become more productive.
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$/Q
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