ARE 433 EXAM 2 STUDY GUIDE WITH
CORRECT SOLUTION
-0.20 - ANSWER What estimate of own-price elasticity of demand would characterize the
demand for agricultural products in the US
True - ANSWER The vast majority of soybeans grown in the US have biotech traits that
enable herbicide tolerance
Crop Insurance Deductibles - ANSWER "Shallow Losses" refer to
Geographically disperse production - ANSWER According to the paper by Bruce
Gardner on the causes of farm programs, which is NOT a characteristic of commodities
that receive a great deal of protection?
True - ANSWER The latest scientific research concludes that there is no apparent health
benefits from organic foods
Crop Insurance - ANSWER "Obama-care" for corn is a humorous term used in reference
to
False - ANSWER The elasticity of the Excess-Demand/ Excess-Supply function of an
importing country always is greater than either the elasticity of the foreign demand or
foreign supply of the country that it is importing from
Diversification, Forward Contracts, Futures and Options, Adoption of Technology,
Business Enterprise Organization, Insurance - ANSWER Risk Management Mechanisms
True - ANSWER Did the 2014 Farm Bill end fixed, direct payments
FALSE (CCP was replaced with PLC and ACRE was replaced with ARC) - ANSWER Did
the 2014 Farm Bill replace ACRE with PLC
True - ANSWER Did the 2014 Farm Bill Replace ACRE with ARC
False (Cut it by 8 billion) - ANSWER The 2014 Farm Bill cut food stamps by $21 billion
Price Loss Coverage (PLC) - ANSWER Commodity Program that is triggered by market
prices beneath a target price, paid on base
Crop Insurance - ANSWER -Main US policy instrument
Agricultural Risk Coverage (ARC) - ANSWER -Alternative to PLC
Supplemental Coverage Option (SCO) - ANSWER -"Shallow Loss" program designed to
cover part of farmers' deductibles as county-level
Crop Insurance Paradox - ANSWER -Theory that suggests risk averse farmers will fully
, insure at actuarially- fair rates
-Available evidence universally rejects this
The Nature of Subsidies - ANSWER -Programs often termed a "Public-Private
Partnership"
True - ANSWER According to tax records and USDA statistics, more than one-half of US
farms actually earn negative profits (i.e., lose money from farming)
True - ANSWER Consider a large importer that imposes a quota on imports. The larger
this importing country tends to be, the greater the share of quota rents that will be paid
by foreign producers
False - ANSWER Since they are a price taker, the elasticity of demand that is faced by
small exporters is zero
True - ANSWER The "Union of Concerned Scientists" argues that organic production
methods are superior to conventional farming techniques.
The Soil Bank - ANSWER Consists of both fallowed cropland and a conservation reserve
on which the government paid for measures that reduced erosion, enhanced wildlife
habitat, and addressed water quality and other concerns.
Conservation Reserve Program (CRP in 1985) - ANSWER Program which returned paid
diversion of erodible farmland into conservation uses, and government financial support
for conservation investments
Needed to protect the nation's capacity to produce food and fiber in the face of erosion -
ANSWER Why do we subsidize conservation?
Actual Production Yield - ANSWER Average Yield, based on last 10 years of production
yield (APH)
Reinsurance - ANSWER Insurance taken by insurers, it transfers both risk and premium
to other insurers and provides diversification of risks and substitutes for equity or debt
Coinsurance - ANSWER Risk sharing mechanism in which risk is covered by a number of
insurers, typically working through a broker
Functions of Reinsurance - ANSWER Financing, Diversification, Stabilization, Reducing
need for Debt Accumulation, Expanding Capacity, Catastrophe Protection, and Service
Provision
Sales Closing Deadline - ANSWER March 15th
Retrocession - ANSWER Reinsurance by reinsurers
Facultative Reinsurance - ANSWER One-off Insurance which gives Ad-hoc coverage of
individual risk or collection of risk. Usually purchased to cover risks insufficiently
CORRECT SOLUTION
-0.20 - ANSWER What estimate of own-price elasticity of demand would characterize the
demand for agricultural products in the US
True - ANSWER The vast majority of soybeans grown in the US have biotech traits that
enable herbicide tolerance
Crop Insurance Deductibles - ANSWER "Shallow Losses" refer to
Geographically disperse production - ANSWER According to the paper by Bruce
Gardner on the causes of farm programs, which is NOT a characteristic of commodities
that receive a great deal of protection?
True - ANSWER The latest scientific research concludes that there is no apparent health
benefits from organic foods
Crop Insurance - ANSWER "Obama-care" for corn is a humorous term used in reference
to
False - ANSWER The elasticity of the Excess-Demand/ Excess-Supply function of an
importing country always is greater than either the elasticity of the foreign demand or
foreign supply of the country that it is importing from
Diversification, Forward Contracts, Futures and Options, Adoption of Technology,
Business Enterprise Organization, Insurance - ANSWER Risk Management Mechanisms
True - ANSWER Did the 2014 Farm Bill end fixed, direct payments
FALSE (CCP was replaced with PLC and ACRE was replaced with ARC) - ANSWER Did
the 2014 Farm Bill replace ACRE with PLC
True - ANSWER Did the 2014 Farm Bill Replace ACRE with ARC
False (Cut it by 8 billion) - ANSWER The 2014 Farm Bill cut food stamps by $21 billion
Price Loss Coverage (PLC) - ANSWER Commodity Program that is triggered by market
prices beneath a target price, paid on base
Crop Insurance - ANSWER -Main US policy instrument
Agricultural Risk Coverage (ARC) - ANSWER -Alternative to PLC
Supplemental Coverage Option (SCO) - ANSWER -"Shallow Loss" program designed to
cover part of farmers' deductibles as county-level
Crop Insurance Paradox - ANSWER -Theory that suggests risk averse farmers will fully
, insure at actuarially- fair rates
-Available evidence universally rejects this
The Nature of Subsidies - ANSWER -Programs often termed a "Public-Private
Partnership"
True - ANSWER According to tax records and USDA statistics, more than one-half of US
farms actually earn negative profits (i.e., lose money from farming)
True - ANSWER Consider a large importer that imposes a quota on imports. The larger
this importing country tends to be, the greater the share of quota rents that will be paid
by foreign producers
False - ANSWER Since they are a price taker, the elasticity of demand that is faced by
small exporters is zero
True - ANSWER The "Union of Concerned Scientists" argues that organic production
methods are superior to conventional farming techniques.
The Soil Bank - ANSWER Consists of both fallowed cropland and a conservation reserve
on which the government paid for measures that reduced erosion, enhanced wildlife
habitat, and addressed water quality and other concerns.
Conservation Reserve Program (CRP in 1985) - ANSWER Program which returned paid
diversion of erodible farmland into conservation uses, and government financial support
for conservation investments
Needed to protect the nation's capacity to produce food and fiber in the face of erosion -
ANSWER Why do we subsidize conservation?
Actual Production Yield - ANSWER Average Yield, based on last 10 years of production
yield (APH)
Reinsurance - ANSWER Insurance taken by insurers, it transfers both risk and premium
to other insurers and provides diversification of risks and substitutes for equity or debt
Coinsurance - ANSWER Risk sharing mechanism in which risk is covered by a number of
insurers, typically working through a broker
Functions of Reinsurance - ANSWER Financing, Diversification, Stabilization, Reducing
need for Debt Accumulation, Expanding Capacity, Catastrophe Protection, and Service
Provision
Sales Closing Deadline - ANSWER March 15th
Retrocession - ANSWER Reinsurance by reinsurers
Facultative Reinsurance - ANSWER One-off Insurance which gives Ad-hoc coverage of
individual risk or collection of risk. Usually purchased to cover risks insufficiently
