Suggested Readings
45
REVIEW QUESTIONS
1. What is a farm? Why has the definition of a farm been changed in recent
years?
2. The number of American farms has been declining. What are some
factors influencing this trend?
3. How does a cooperative differ from a “for profit” corporation?
4. Corporate farms have been increasing in number. What impact could
this development have on family farms?
5. Agricultural producers are responsible for producing the final product
that the consumer purchases. Thus, the agricultural marketing system
is unproductive. Discuss.
6. Farmers and ranchers should adjust their production to the food and
fiber needs of consumers. Discuss.
7. "The U.S. government should restrict imports of agricultural commodi-
ties, since we can produce all commodities more efficiently than any
other country.” Discuss.
8. What is gross domestic product (GDP)? What does it measure?
9. How do the government's regulatory powers, monetary policy, and
fiscal policy influence economic activity in the system?
SUGGESTED READINGS
Abrahamsen, Martin A. Cooperative Business Enterprise, New York: McGraw-Hill,
1976, Chapters 1-3.
Agricultural Outlook, a monthly magazine. Washington, D.C.: Economic Research
Service, U.S. Department of Agriculture.
Handbook of Agricultural Charts, Washington, D.C.: Economic Research Service,
U.S. Department of Agriculture.
Agribusiness Coordination, Boston, Mass.: Division of Research,
Goldherr R RaTrA
Change in quantity demanded
Complements
Cross price elasticity
Demand curve
Diminishing marginal rate of
substitution
Engel curve
Equilibrium
Indifference curve
Indifference map
Law of diminishing marginal
utility
Market demand curve
Price elasticity of demand
Substitutes
Substitution effect
REVIEW QUESTIONS
1. Define utility. Is temperature measurable? Is utility measurable?
2. Indifference curves represent the tastes and preferences of a consumer.
add up indifference curves to show the tastes and preferences
of a nation? Why, or why not?
Can you
V
Consumer Behavior and Demand
Chapter 3
74
3. Demand curves normally slope downward and to the right. Can you
think of abnormal demand curves that have different slopes?
4. Given your knowledge of elasticity, why would legislators continue to
raise the tax on products such as cigarettes and beer?
5. What is the difference between a change in demand and a change in
quantity demanded?
6. Explain the factors that would shift a given demand curve.
7. Explain the meaning of a cross elasticity coefficient between bread and
butter of -1.8.
SUGGESTED READINGS
Awh, Robert Y. Microeconomics: Theory and Applications, Santa Barbara, Calif.: John
Wiley & Sons, 1976, Chapter 6.
Goodwin, John W. Agricultural Economics, 2nd ed. Reston, Va.: Reston, 1982,
Chapter 12
Heyne, Paul T. The Economic Way of Thinking, 7th ed. New York: Macmillan, 1993,
Chapter 2
Leftwich, Richard H., and Ross D. Eckert. The Price System and Resource Allocation,
10th ed. Hinsdale, III.: The Dryden Press, 1987, Chapters 5 and 6.
Samuelson, Paul A., William D. Nordhaus and Michael J. Mandel. Economics, 15th
ed. New York: McGraw-Hill, 1995, Chapter 22.
AN OUTSTANDING CONTRIBUTOR
Jean Kinsey Jean Kinsey is currently professor in
the Department of Agricultural and Applied Eco-
nomics and Director of the Food Retail Industry
Center at the University of Minnesota.
Lan's
back the use of that resource. Profit is greater (or losses less) when that
marginal unit is not used because costs are reduced more than is revenue
by that reduction in resource use.
As we relate the quantities of a variable resource to different prices for
that resource, we can note the special conditions in the demand for any
good or resource. The higher its price, the less of any good or resource
that will be used, and conversely. Plotting the pairs of price-quantity
observations identifies the firm's demand for a variable resource. The
Stage II portion (only) of the MVP curve of any variable resource is the
firm's demand curve for that resource.
CHAPTER HIGHLIGHTS
1. Resources, production, and goods and services are words or terms
with economic meaning. In the process of using resources to produce
goods and services, utility is created because human wants can be
satisfied with them.
2. The universe of things and their relations to one another are far too
complex for the human mind to grasp without a systematic abstraction
and classification.
3. The relationship between resources and their product is called a
production function.
sud
96
- Chapter 4 Producer Decision Making: Input Functions
4. A constant input-output relationship results when we do not change
land, labor, capital, and management. This relationship may be
the makeup of the input unit formed from the four basic resources,
summarized with the general function Y=f(X1 ... Xn),
t
K
R
or
simply
Y =f(x).
described by the general function Y =f(X1/X2, X3, X4).
the inputs used to produce something, a relationship
5. Diminishing returns are the inevitable consequence of changing pro-
6. The law of diminishing returns states that “as successive amounts of a
variable input are combined with a fixed input, the total product will
increase, reach a maximum, and eventually decline.
7. Marginal physical product is the amount that is added to total product
when another unit of the variable input is used. MPP measures the rate
of change in the input-output relationship and is obtained by dividing
the change in total physical product (TPP) by the causal change in the
variable input.
8. Average physical product is a measure of the average productivity of
the variable input. APP is obtained by simply dividing total output by
the number of units of the variable that produced the product.
9. Taken together, MPP and APP define three stages of production in
only one of which (Stage II) will an economic optimum be found.
10. When output is multiplied by the price of the product we have total
value product — TPP Py = TVP. We then derive MVP and AVP in
the same way as their physical counterparts were derived:
ATVP
MVP =
AX1
X
TVP
and AVP =
X1
11. The amount that is added to total cost, when another unit of the
variable input is used, is called marginal factor cost — MFC — which
is the market price of that resource, so MFC = Px1.
12. Knowing both returns and costs at the margin permits us to determine
the optimal rate at which to use the variable input. The optimum is
determined by equating MVP and MFC. Too little of the resource is
being used if MVP is greater than MFC; the opportunity to capture
that excess of value over costs is needlessly forfeited. If MVP is less
than MFC, the last unit of output costs more to produce than it is
worth, and too much of the variable input is being used.
13. The MVP curve within Stage II is the firm's demand curve for the
variable input, observed by noting the optimal quantity of the input
used at each different price for that resource.
Purchase answer to see full
attachment