AGB 212 TEST PAPER ANSWERS AND QUESTIONS
SET A+
✔✔indifference curves - ✔✔a line that shows the consumption bundles that yield the
same amount of total utility/ an indifference curve represents all combinations of two
goods that yield an equal level of satisfaction or utility.
✔✔marginal rate of substitution - ✔✔the rate at which a consumer is willing to trade one
good for another
✔✔Marginal Rate of Substitution (MRS) equation - ✔✔MRS= change in product
quantity/ change in product quantity
✔✔budget constraint - ✔✔the limited amount of income available to consumers to
spend on goods and services (can't go over budget at grocery store)
✔✔disposable income - ✔✔income (after taxes) that is available to you for saving or
spending
✔✔budget constraint line - ✔✔shows the possible combinations of two goods that are
affordable given a consumer's limited income
✔✔Engel's Law - ✔✔as disposable income of a consumer increases, the percentage of
income spent for food decreases if all other factors remain constant
✔✔slope of budget line - ✔✔quantity of tacos= income/price of tacos- (price of
hamburgers X quantity of hamburgers/ price of tacos)
✔✔what will happen to the budget line if income changes and prices remain
unchanged? - ✔✔the budget Line will move in a parallel fashion
✔✔products have elastic demand if: - ✔✔-there are many substitutes for the product
-it is a luxury good
, -a large portion of your budget is spent on it
✔✔own price elasticity is: elastic - ✔✔cutting the price will: increase revenue/ increasing
the price will: decrease revenue
✔✔own price elasticity is: unitary elastic - ✔✔cutting the price will: not change revenue/
increasing the price will: not change revenue
✔✔own price elasticity is: inelastic - ✔✔cutting the price will: decrease revenue/
increasing the price will: increase revenue
✔✔product has inelastic demand if: - ✔✔-it is a necessity
-it accounts for a small part of your budget
-there are no substitutes
-it has addicting qualities
✔✔characteristic of agriculture: - ✔✔own-price elasticity is: inelastic/ cutting the price
will: decrease revenue
✔✔income elasticity: - ✔✔-measures consumer responses to a change in disposable
income- change in demand for goods with each 1% change in income.-disposable
income- the personal income left paying taxes
✔✔does a change from A to C means income increased? - ✔✔maybe
✔✔does a change from c to b means income increased? - ✔✔maybe
✔✔luxury good - ✔✔greater than 1.0
goods for which consumption increases at a higher proportion than income
increaseswhat are examples in food/ agribusiness
✔✔normal good - ✔✔less than 1.0 but greater than 0.0/
goods for which consumption rises when income increases and vice versa, up to a
point
✔✔inferior good - ✔✔negative/ less than 0.0
goods for which consumption falls when income increases what are example in
food/agribusiness
✔✔if cross price elasticity is positive: - ✔✔it is a substitute
✔✔if cross price elasticity is negative: - ✔✔it is a compliment
✔✔if cross price elasticity is zero: - ✔✔it is independent
SET A+
✔✔indifference curves - ✔✔a line that shows the consumption bundles that yield the
same amount of total utility/ an indifference curve represents all combinations of two
goods that yield an equal level of satisfaction or utility.
✔✔marginal rate of substitution - ✔✔the rate at which a consumer is willing to trade one
good for another
✔✔Marginal Rate of Substitution (MRS) equation - ✔✔MRS= change in product
quantity/ change in product quantity
✔✔budget constraint - ✔✔the limited amount of income available to consumers to
spend on goods and services (can't go over budget at grocery store)
✔✔disposable income - ✔✔income (after taxes) that is available to you for saving or
spending
✔✔budget constraint line - ✔✔shows the possible combinations of two goods that are
affordable given a consumer's limited income
✔✔Engel's Law - ✔✔as disposable income of a consumer increases, the percentage of
income spent for food decreases if all other factors remain constant
✔✔slope of budget line - ✔✔quantity of tacos= income/price of tacos- (price of
hamburgers X quantity of hamburgers/ price of tacos)
✔✔what will happen to the budget line if income changes and prices remain
unchanged? - ✔✔the budget Line will move in a parallel fashion
✔✔products have elastic demand if: - ✔✔-there are many substitutes for the product
-it is a luxury good
, -a large portion of your budget is spent on it
✔✔own price elasticity is: elastic - ✔✔cutting the price will: increase revenue/ increasing
the price will: decrease revenue
✔✔own price elasticity is: unitary elastic - ✔✔cutting the price will: not change revenue/
increasing the price will: not change revenue
✔✔own price elasticity is: inelastic - ✔✔cutting the price will: decrease revenue/
increasing the price will: increase revenue
✔✔product has inelastic demand if: - ✔✔-it is a necessity
-it accounts for a small part of your budget
-there are no substitutes
-it has addicting qualities
✔✔characteristic of agriculture: - ✔✔own-price elasticity is: inelastic/ cutting the price
will: decrease revenue
✔✔income elasticity: - ✔✔-measures consumer responses to a change in disposable
income- change in demand for goods with each 1% change in income.-disposable
income- the personal income left paying taxes
✔✔does a change from A to C means income increased? - ✔✔maybe
✔✔does a change from c to b means income increased? - ✔✔maybe
✔✔luxury good - ✔✔greater than 1.0
goods for which consumption increases at a higher proportion than income
increaseswhat are examples in food/ agribusiness
✔✔normal good - ✔✔less than 1.0 but greater than 0.0/
goods for which consumption rises when income increases and vice versa, up to a
point
✔✔inferior good - ✔✔negative/ less than 0.0
goods for which consumption falls when income increases what are example in
food/agribusiness
✔✔if cross price elasticity is positive: - ✔✔it is a substitute
✔✔if cross price elasticity is negative: - ✔✔it is a compliment
✔✔if cross price elasticity is zero: - ✔✔it is independent
