440 Final Exam Questions and Complete Solutions

440 Final Exam Questions and Complete Solutions Goals off Agricultural Policy - Correct Ans: Saving the family farm (provide tools for the farm family to reduce risk) Adjusting Market needs (expanding demand, remaining competitive, and achieving open markets internationally) Soil conservation (sustainable production in the utilization of land, air, and water) Maintain adequate food reserves (food security, food safety, and homeland security) Domestic demand expansion (eating wisely and in moderation. Expanding the use of agriculture's production capacity to help meet energy needs) Steps in the Policy Process - Correct Ans: 1. public concern is voiced 2. the concern develops into a controversial issue 3. the problem is defined 4. facts, myths, and values are interwoven into the process 5. alternative solutions emerge 6. analysis occurs; consequences are theorized, estimated, documented, and debated 7. a solution emerges through the political process Facts - Correct Ans: based on empirical observation, research and statistics myths - Correct Ans: things people think are facts Values - Correct Ans: developing set of principles and beliefs Disciplinary interaction - Correct Ans: Economics (allocation of scarce resources among society's unlimited wants and needs) Politics (how people with different values exist in a civilized society) Ethics (guide the decision-making process based on a set of principles) How much is the annual USDA budget? - Correct Ans: 100 million What percentage of U.S. households do not have access to enough foods to meet its basic needs? - Correct Ans: 10% Average U.S. farm income is larger/smaller than average U.S. household income - Correct Ans: larger What is one reason supply is inelastic? - Correct Ans: Inelastic supply means that if the price of the commodity changes, the supply will not change much. This is because farmer cannot change production as often as the price changes. Commodity prices can change every few minutes but planting season can last 8-9 months a year. Therefore, producers cannot respond quickly to price changes. What is one reason demand is inelastic? - Correct Ans: Inelastic demand means that if the price of the good changes, the demand/consumption for that good will not change much. Demand is inelastic in agriculture because food is a necessity item and consumers cannot substitute out of it for a cheaper item. Therefore, if the price of food increases, people will still consume it to meet their nutritional needs. If the price of food falls, people will not necessarily double the amount of food they eat. What is an environmental externality? - Correct Ans: An environmental externality is an unintended environmental consequence of production. An example would be nitrogen runoff in the soil from spraying fertilizer. This negative impact is not factored into the cost of production because no one is explicitly paying for it even though it has a social/environmental cost. Describe one reason why government involvement in agriculture is constrained? - Correct Ans: Economic freedom: not interfering too much in the markets. Political conservatism: farmers historically prefer less government involvement. Budget/government costs: programs are expensive Capitalization: resources should be allocated to the most efficient users Globalization: the US has to abide by international law if it wants to trade with other countries, which means the government cannot put policies in place that would hurt producers and consumers in other countries. common sense: the US does not want to be run by a dictator; we are founded on democracy and representation of citizens and invested parties. Comparing the costs and benefits (pros and cons) of a policy is an example of what kind of economic approach? - Correct Ans: Analytical Making a case for a particular solution and advocating its adoption is an example of what kind of economic approach? - Correct Ans: Evangelistic Changes in the Ag Economy - Correct Ans: Welfare Economics - Correct Ans: Use off microeconomic theories (demand and supply) to evaluate the well being (welfare) of consumers and producers collectively in a market. Price Floor - Correct Ans: Government restriction that sets a minimum price of a good. The market price cannot fall below the price floor. Meant to help producers cover costs and stay in the market. Subsidy - Correct Ans: A government payment that supports a business or market