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AGEC 4050 FINAL EXAM ACTUAL
SOLUTION!!
Suppose you are hired as a consultant to a developing country that wishes to expand its food industry. How would you divide the available development resources between production agriculture and the food marketing system. - Answers -Both production agriculture and food marketing are equally important. One cannot be developed without the other because of the very complementary nature of the relationship between production and marketing. The nature of the relationships between the food marketing participants (i.e., farm producers, middlemen, and consumers) is considered to be both competitive and complementary at the same time. Do you agree with this statement? Explain. - Answers -Both competitive and complementary at the same time. -Farmers rely on marketing middlemen to move food products to final consumers. -Middlemen, in turn, rely on farmers for raw farm commodities. -Consumers rely on both farmers and middlemen for final food products. What is a product market? - Answers Includes close demand or supply substitutes (also complementary goods).
What are demand substitutes and supply substitutes? What are some examples of both types of substitute products? - Answers -Product B is a demand substitute for A if an increase in the price of A causes consumers to demand more B. Examples of demand susbtitutes include Coke and Pepsi, tea and coffee, beef and chicken, butter and margarine, etc. -Supply substitutes are two or more goods that can be produced using the same resources. -Examples of supply susbtitutes include wheat and barley. How is the pricing of a product affected by the presence of many demand substitutes? How is the pricing of a product affected by the presence of supply substitutes? Provide some examples to support your answer. - Answers -The presence of demand or supply substitutes restricts the pricing ability of a firm. -A salt producing firm is expected to have more latitude in pricing salt than does a firm producing soft drinks. -If barley price increases relative to wheat price, wheat producers can switch to the production of barley. -The presence of wheat as a supply substitute for barley limits the barley producers pricing flexibility. Explain the sign of each of the cross-price elasticities presented in the accompanying table. What does it imply about the relationship between the two goods in question? - Answers Sign of cross price elasticity indicates the type of relationship between goods: negative cross price elasticity signifies complementary goods, and positive cross price elasticity represents substitutes.
model, farmers/ranchers integrate vertically into the food marketing system by providing functions that extend beyond traditional farm production. What are the similarities and major differences between merchant middlemen, speculators, and agent middlemen. - Answers - MERCHANTS -Major funcions -Buy and sell products they handle -Merchandise, while minimizing risk -May add time, place, form, possession utility -Income -Price over marginal cost markup -Examples -Retailers and wholesalers -SPECULATORS -Major functions -Buy and sell products they handle -Specalize in risk taking and benefit from short-run price movements -No additional utility added to commodities -Income -Price over marginal cost markup -Examples -Traders, spreaders, scalpers -AGENTS
-Major Functions -Provide services by bringing buyers and sellers together and acting as their representatives -Provide market knowledge and know-how to buyers and sellers lacking market information or barganing power; no risk taking -No additional utility added to commodities -Income -Fees and commissions -Examples -Brokers and commission men What is the role of food retailers and wholesalers in the food marketing system? Explain the interdependence between retailers and wholesalers in satisfying consumer food demand. - Answers -Retailers offer the convenience of one-stop-shopping, where consumers can choose from a whole range of food products that come in different varieties. -Wholesalers, in turn may assemble a narrow range of farm commodities directly from farms, and deliver to processors and retailers. -Consumers rely on retailers for a wide variety of products. It would be inefficient for retailers, too, to deal with individual farm producers. What is marketing intelligence? Provide an example of how farmers can use marketing intelligence/market information to make important production and marketing decisions. - Answers -Marketing intelligence refers to the collection, analysis, interpretation, and dissemination of data necessary for a firm to operate in a market environment.
-Free-rider problem in agricultural production and marketing undermines the collective effort of the agricultural producers. It reflects the inherent difficulty in getting agricultural producers organized in their dealings with farm input supply sector and food commodity buyers. American foodways are considered to be the result of five influences. Define foodways, and provide the list of all five influences. Further, provide an example of each of these influences. - Answers -Foodways - Common patterns of dealing with food. -American foodways are widely thought to be the result of the following five influences:
- Functional, physiological food values-Reflects the contribution of food to consumer health and well-being.
- Socio-psychological food values-These food values are especially important in buying for special family meals or meals where important guests are involved.
- Economic values of food-Consumers' buying decisions are most often guided by economic reasoning..
- Food availability- The food environment surrounding individual consumers does influence eating behaviors and potentially affects overall diet quality.
- Consumer food knowledge-information and beliefs about food products. What are some of the farm marketing issues facing the Minnesota dairy farmers? - Answers -The root causes of the farm marketing issues facing the Minnesota dairy farmers are the farm commodity and production characteristics. Farmers have become more dependent on off-farm sources of production resources, as a result of which farm costs and profitability are now determined by non-farm sectors to a greater extent.
How do dairy farmers alter certain commodity characteristics in an attempt to address the above marketing issues? (Hint: Relate your discussion to the farmer choices of the 4 Ps of Marketing: Product, Price, Promotion, and Place.) - Answers -A groups of Minnesota dairy farmers decides to unite their resources and efforts to transform the dairy products having a commodity orientation to value-added products. Unlike milk that is homogenous, specialty cheese is a differentiated product. It further reduces bulkiness and perishability of milk and thus can be shipped longer distances, offers functional values. As a result, dairy producers have more loyal customers, higher bargaining/negotiating power, and can charge higher prices and markups. -Marketing 4 Ps: -Product: High-end specialty cheese and other dairy products that are not offered by many producers, which is can be a source of bargaining/market power. -Price: Higher specialty dairy product prices compared to milk price, driven by additional costs, and investment equity contributed by farmers. -Promotion: Brochures, food co-op letters, press releases, health and nutrition meetings, word-of-mouth, websites for natural food campaigners, -Place: Farmers markets, buying clubs, specialty stores, piggyback sales by other direct marketers that try to increase the sales of their own products by offering PastureLand specialty dairy products. What is Engel's Law in economics? How do food expenditures respond to rising consumer incomes in both absolute and relative terms? - Answers -An economic regularity stating that with rising income the proportion of income spent on food falls, even when absolute food expenditure increases.
What is "The Agricultural Treadmill" and who benefits from the adoption of new technology in farm production? Provide graphical illustration of this phenomenon. - Answers -Adoption of new technology shifts the agricultural product supply curve rightward. Given the inelastic nature of the demand for agricultural products, the increase in supply reduces total agricultural producer revenues. -Agricultural producers' constant need to adopt new technology that benefits consumer more than producers. Explain the difference between the change in demand and change in quantity demanded. What are some of the main factors causing each type of change? - Answers -A change in quantity demanded represents a movement along the current demand curve. -own price changes -changes in quantity demanded -A change in demand represents a shift in the entire demand curve. -Changes in demand -Consumer income -Consumer tastes and preferences -Consumer expectations Perfect competition is characterized by a large number of small firms producing differentiated products. - Answers False
When Target left the Canadian market in 2015, demand for Walmart products and those of other supermarkets most likely became less elastic, ceteris paribus. - Answers True The ban on the exports of US beef to China because of mad-cow disease shifts the beef supply curve in the US leftward/inward. - Answers False All of the following statements are correct except: a. Assuming that McDonald's coffee and Starbucks coffee are substitutes, an increase in Starbucks coffee price will lead to a rightward shift in demand for McDonald's coffee. b. Government farm supply control programs that reduce farm supply do not benefit farm producers, given the inelastic demand for farm commodities. c. Elastic income elasticity of demand for steaks indicates that a 13% change in income will generate a 15% change in demand for steaks. d. Assuming that salmon is a normal good, decreasing incomes will typically result in a decrease in demand for salmon. - Answers b. Government farm supply control programs that reduce farm supply do not benefit farm producers, given the inelastic demand for farm commodities Do you think the price elasticity of demand for Ford sport-utility vehicles (SUVs) will increase, decrease, or remain the same when each of the following events occurs? Explain your answer. - Answers (a) Other car manufacturers, such as General Motors, decide to make and sell SUVs. -Increase because new substitutes become available.
- Speculative Middlemen
- Processors and Manufacturers
- Facilitative Organizations Provide the four types of market structures. What four characteristics are these competition/market structures defined based on? Give an example of each type of competitive market. - Answers -Perfect competition, Monopolistic competition, Oligopoly, Monopoly.
- Number of firms, Product differentiation, Ease of entry and exit, Information. With the introduction of drought tolerant corn one would expect: a) corn supply to increase. b) corn supply to decrease. c) corn supply could increase or decrease. d) corn supply to remain unchanged. - Answers a) corn supply to increase. Agricultural research results in: a) an upward movement along the supply curve of wheat b) a downward movement along the supply curve of wheat c) an outward shift in the supply curve of wheat d) an inward shift in the supply curve of wheat - Answers c) an outward shift in the supply curve of wheat All of the following statements are incorrect except:
(a) Perfect competition is characterized by a few large firms selling homogenous products (b) Farmers can escape from perfect competition by forming marketing coops and selling as a unit (c) Individual farmers face a downward-sloping demand curve because of the influence they have on prices (d) Utility companies tend to be monopolies to utilize scale economies - Answers (b) Farmers can escape from perfect competition by forming marketing coops and selling as a unit When the price elasticity of demand for a good equals (assume price is measured on the vertical axis) a) 0, the demand curve is horizontal b) 1, the demand curve is vertical c) 1, the demand curve is horizontal d) 0, the demand curve is vertical - Answers d) 0, the demand curve is vertical All of the following statements are correct except: e) Assuming that McDonald's coffee and Starbucks coffee are substitutes, an increase in Starbucks coffee price will lead to a rightward shift in demand for McDonald's coffee. f) Farmers benefit from government farm supply control programs that reduce farm supply, given the inelastic demand for farm commodities. g) Inelastic income elasticity of demand for steaks indicates that a 15% change in income will generate a 15% change in demand for steaks. h) Assuming that salmon is a normal good, decreasing incomes will typically result in a decrease in demand for salmon. - Answers e) Assuming that McDonald's coffee and Starbucks coffee are substitutes, an
If two goods are complements, then one can replace the other in consumption. - Answers False The Law of One Price in time indicates that prices of a farm commodity in two geographic areas differ by the amount of the cost of getting the commodity from one area to the other. - Answers True Individual farmers have no incentive to promote farm commodities they produce because of homogeneity/fungibility of these commodities. - Answers True
