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2006Fall_Exam1KEY

# 2006Fall_Exam1KEY - AEC 305(Fall 2006 Exam 1(25 NAME A True...

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AEC 305 (Fall 2006) Exam 1 (25%) NAME __________________________________________ A. True or False: (3 points each). Identify if the following statements are true or false by circling the correct response . IF THE STATEMENT IS FALSE CORRECT IT TO MAKE IT TRUE . 1. True or False. The decline in the farmer’s share of retail food expenditures over the past five decades has been primarily due to declining farm commodity prices. False. The main reason the farmer share has declined is due to consumer’s demanding more convenience and additional processing (i.e., more marketing costs). 2. True or False. The farmer’s share of the food marketing bill will always be greater than the farmer’s share of the market basket since the former includes both at-home and away-from home consumption, while the latter only includes at-home consumption. False. See Figure 2-5 in Schrimper. Since the marketing bill includes both at-home and away-from home consumption items (which requires more processing and other marketing costs), its corresponding farm value will always be LESS than the farm value of the market basket which only uses at-home items in its calculations. 3. True or False. A decrease in a commodity price from one period to another would result in its corresponding price relative being negative (i.e., less than zero). False. Price relatives are a ratio of two prices and thus will always be positive. In the case of a decline in price between two periods, the price relative will be less than 100, but greater than zero. 4. True or False. Goods x and y are substitutes. An increase in the price of substitute good x would shift the demand curve of good y to the left. False. The demand curve will shift to the right. 5. True or False. If the income elasticity of a good is less than one it is classified as an inferior good. False. A good is an inferior good only if its income elasticity is negative (i.e. less than zero). 6. True or False. A sales manager desiring to maximize sales revenues would tend to lower prices of goods with the greatest demand elasticities (in absolute value). True 7. True or False. Higher income countries and individuals tend to have lower income elasticities for food compared to lower income countries and individuals. True B. Multiple Choice: Circle the correct answer. (3 points each)

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