AGEC 314 TEST 2 AND EXAM 2 QUESTIONS AND ANSWERS | AGEC
314 TEST 2 & EXAM 2 STUDY GUIDE AND PRACTICE TEST 2026/2027
What is own price elasticity - Ans✅ How the quantity demanded responds to changes in own price
Positive CPE - Ans✅ Substitutes
Negative CPE - Ans✅ Complements
CPE = 0 - Ans✅ Independent
Changes in consumption are not always caused by graphs. Explain - Ans✅ Can be caused by a shift in
supply. Increase supply, decrease supply, increase consumption. Decrease supply, increase price,
decrease consumption
How does a strong dollar hurt exports? - Ans✅ When the dollar is strong, the exchange rate becomes
larger so the price in terms of foreign currency increases, forcing foreign consumers to pay more,
decreasing demand for the export
Why is demand for US commodities abroad erratic? - Ans✅ There are other factors beyond population
and income that affect demand. These factors include geo-political, social, and natural condition factors
What are the advantages for a foreign corporation to locate a plant in a foreign country with a high
tariff? - Ans✅ Avoids the tariff, saves transportation costs, and is a win-win for both the corporation
and the host country
Why does the US export more crops than livestock? - Ans✅ We have comparative advantage in crop
production, farmers get government support for crop production, the increased foreign demand for
crops, and the non-perishability attribute of some crops compared to meat and livestock product
Factors influencing the domestic market - Ans✅ Population and income
,Market segmentation - Ans✅ The process of identifying and focusing marketing efforts on specific
subgroups of the population
Product positioning - Ans✅ The strategy of placing product into a target submarket in a desired
position relative to competitors products
Trends of food at home compared to away from home - Ans✅ Increased consumption of food away
from home. Due to convenience, fast paced lifestyle, and a more social lifestyle
OPE > 1 - Ans✅ Elastic
OPE = 1 - Ans✅ Unit elastic
OPE < 1 - Ans✅ Inelastic
IE = negative - Ans✅ Inferior
IE = positive - Ans✅ Normal
0 < IE < 1 - Ans✅ Neccessity
IE > 1 - Ans✅ Luxury
Basis for international trade - Ans✅ Comparative advantage and free trade
Comparative advantage - Ans✅ When one country can produce a certain good more efficiently with
lower production costs compared to another country
, Complementary import - Ans✅ Items that aren't produced efficiently in the US. Domestic demand for
something we don't produce
Competitive import - Ans✅ Domestic demand exceeds what the importing country can produce so
more must be imported to meet domestic demand
Factors shifting comparative advantage - Ans✅ Transportation costs, technology changes, and
government policy changes
Pricing system - Ans✅ Market mechanism in which market participants discover, negotiate, or set
prices
Transaction costs - Ans✅ Costs incurred as market participants search for market opportunities and
market prices, and make and complete business deals
Price discovery system - Ans✅ Buyers and sellers arriving at prices for a commodity when market
conditions do not allow either group to set prices. Strongly affected by supply and demand
Organized markets - Ans✅ Buyers and sellers have public access, formal set of rules, and price is close
to competitive equilibrium price
Electronic version of organized markets - Ans✅ Buyers and sellers communicate via the internet and
telephone calls. Expands the market and saves transaction costs
DIN (Decentralized, individual negotiations) - Ans✅ Buyers and sellers negotiate individually.
Advantages include convenience, lower transaction costs, and transactions can be made anytime and
anywhere. Disadvantages include lack of information and lack of negotiating skills
Price setting system - Ans✅ Prices can be set by buyers, sellers, or the government. Supply and demand
have little influence
Contractual exchange - Ans✅ Transactions where the phases are not completed at the same time
314 TEST 2 & EXAM 2 STUDY GUIDE AND PRACTICE TEST 2026/2027
What is own price elasticity - Ans✅ How the quantity demanded responds to changes in own price
Positive CPE - Ans✅ Substitutes
Negative CPE - Ans✅ Complements
CPE = 0 - Ans✅ Independent
Changes in consumption are not always caused by graphs. Explain - Ans✅ Can be caused by a shift in
supply. Increase supply, decrease supply, increase consumption. Decrease supply, increase price,
decrease consumption
How does a strong dollar hurt exports? - Ans✅ When the dollar is strong, the exchange rate becomes
larger so the price in terms of foreign currency increases, forcing foreign consumers to pay more,
decreasing demand for the export
Why is demand for US commodities abroad erratic? - Ans✅ There are other factors beyond population
and income that affect demand. These factors include geo-political, social, and natural condition factors
What are the advantages for a foreign corporation to locate a plant in a foreign country with a high
tariff? - Ans✅ Avoids the tariff, saves transportation costs, and is a win-win for both the corporation
and the host country
Why does the US export more crops than livestock? - Ans✅ We have comparative advantage in crop
production, farmers get government support for crop production, the increased foreign demand for
crops, and the non-perishability attribute of some crops compared to meat and livestock product
Factors influencing the domestic market - Ans✅ Population and income
,Market segmentation - Ans✅ The process of identifying and focusing marketing efforts on specific
subgroups of the population
Product positioning - Ans✅ The strategy of placing product into a target submarket in a desired
position relative to competitors products
Trends of food at home compared to away from home - Ans✅ Increased consumption of food away
from home. Due to convenience, fast paced lifestyle, and a more social lifestyle
OPE > 1 - Ans✅ Elastic
OPE = 1 - Ans✅ Unit elastic
OPE < 1 - Ans✅ Inelastic
IE = negative - Ans✅ Inferior
IE = positive - Ans✅ Normal
0 < IE < 1 - Ans✅ Neccessity
IE > 1 - Ans✅ Luxury
Basis for international trade - Ans✅ Comparative advantage and free trade
Comparative advantage - Ans✅ When one country can produce a certain good more efficiently with
lower production costs compared to another country
, Complementary import - Ans✅ Items that aren't produced efficiently in the US. Domestic demand for
something we don't produce
Competitive import - Ans✅ Domestic demand exceeds what the importing country can produce so
more must be imported to meet domestic demand
Factors shifting comparative advantage - Ans✅ Transportation costs, technology changes, and
government policy changes
Pricing system - Ans✅ Market mechanism in which market participants discover, negotiate, or set
prices
Transaction costs - Ans✅ Costs incurred as market participants search for market opportunities and
market prices, and make and complete business deals
Price discovery system - Ans✅ Buyers and sellers arriving at prices for a commodity when market
conditions do not allow either group to set prices. Strongly affected by supply and demand
Organized markets - Ans✅ Buyers and sellers have public access, formal set of rules, and price is close
to competitive equilibrium price
Electronic version of organized markets - Ans✅ Buyers and sellers communicate via the internet and
telephone calls. Expands the market and saves transaction costs
DIN (Decentralized, individual negotiations) - Ans✅ Buyers and sellers negotiate individually.
Advantages include convenience, lower transaction costs, and transactions can be made anytime and
anywhere. Disadvantages include lack of information and lack of negotiating skills
Price setting system - Ans✅ Prices can be set by buyers, sellers, or the government. Supply and demand
have little influence
Contractual exchange - Ans✅ Transactions where the phases are not completed at the same time
