About Economics
What are the two sides of the price determination model?
Economics measures satisfaction in terms of _________
Utility
Economics measures sensitivity (of prices, incomes, etc) of producers and consumers through __________
Elasticities
As farmers specialize and make large fixed investments, their output becomes _______ _____________ to price changes
less responsive
What are 4 characteristics of supply in agriculture?
1. Significant time lags between production decisions and output realization
2. Yields vary due to weather, diseases, insects, etc
3. Expectations of producers can cause cyclical supply
4. Changes in supply are highly limited by fixed resources.
What are the three basics of demand theory?
1. Consumer choice with income limits
2. Consumers will try to maximize utility
3. There is an inverse relationship between price and quantity
The ___________ the elasticity, the more Y changes in response to changes in X
higher
Consumers respond to changes in ___________ prices
Relative
What are three attributes about agriculture that make price analysis difficult/different?
1. Wide variety of market structures
2. Biological time lags
3. In the short run, supply is inelastic
What effect is the following statement referring to- When the price of a good decreases, consumers tend to buy more of it due to its now relatively lower price compared to other goods.
Substitution effect
If the slope of the demand curve is _________ , then consumers are not very sensitive to price changes.
steep
As consumers become more _____________, their purchases of particular food products become less elastic.
knowledgeable
What are four characteristics of demand for farm level products?
1. Demand of farm level products tends to be inelastic
2. Demand shocks can cause major disruptions such as financial or health scares
3. Macroeconomic factors play a major role in farm commodity prices
4. Global ag markets are interconnected
We discussed two demand theories in class- _____________ demand curve is derived by maximizing the utility function given the consumer's budget constraint
_______________ demand curve is derived by minimizing expenditures subject to a fixed level of utility
Marshallian
Hicksian
In agriculture, the own-price elasticity of demand for a
good often depends on the availability of ___________.
substitutes
A demand curve with high sensitivity to price changes is called an __________ demand.
elastic
What is the term used for when the price of a market increases to a high degree and then must come back down to find the new equilibrium?
Short run price overshooting
______________ ______________ analysis assumes consumers respond instantaneously to price changes, focusing solely on the quantity response to price at a particular moment in time
Static demand
Let's say that pork has an own price elasticity of demand of -1.96 and beef has -0.69. Which one will be able to withstand profits better if the price increases?
Beef
The elasticity for food is typically ___________ while the elasticity for a product that has at least a few substitutes is __________
Inelastic, elastic