Instructions: This sample test is composed of
three files - test questions, answers, and
explanations. You may move from one file to
another by choosing an appropriate link.
1. Consider an agricultural product with a price
elasticity of demand of -2. What should be done
in order to increase total revenue?
a. increase quantity
b. increase price
c. decrease quantity
Answer to Question 1
2. With an income elasticity of 0.2 for apples, what is
the impact of a 10% increase in income?
a. 0.2% increase in price
b. 2% increase in price
c. 0.2% increase in quantity
d. 2% increase in quantity
Answer to Question 2
3. The speed of adjustment in production is measured by
a. the price elasticity of supply
b. production controls
c. the income elasticity
d. farm size
Answer to Question 3
4. Technological change in production is shown
directly by a reduction in
a. domestic demand
b. average costs
c. export demand
d. government expenditures
Answer to Question 4
5. Which of the following is an example of a positive
externality?
a. apples selling for $7 here and $5 there
b. 16 million bushels of wheat being exported
c. agricultural chemicals discovered in drinking
d. a beautiful country side next to an urban area
Answer to Question 5
6. What is the impact of soil erosion on cropland?
a. lower agricultural productivity
b. cleaner streams, rivers, and lakes
c. higher export demand
d. reduced concern by society for conservation
Answer to Question 6
7. What is the impact of mining underground water
supplies at higher rates than they are being
replenished?
a. expanding future production
b. restricting current production
c. raising current prices of farm products
d. limiting future water supplies
and economic activities
Answer to Question 7
8. Restricting chemical use in agriculture would
a. increase pollution of ground water,
streams, and lakes
b. increase production
c. increase exports
d. raise farm prices
Answer to Question 8
9. Higher energy prices raise the cost of marketing
services which results in
a. lower farm prices
b. lower retail prices
c. increased farm production
d. increased retail demand for food
Answer to Question 9
10. Assume a large group of farmers are selling in three
distinct markets with different price elasticities of
demand. If they had additional production to sell, in
which of the markets should it be sold?
a. market with inelastic demand
b. market with elastic demand
c. market with unitary elasticity
d. equal amount in all markets
Answer to Question 10
11. If the government controlled price by setting a price
ceiling at the current price on a commodity with a
rapidly rising demand, what would happen?
a. a shortage would arise
b. quantity supplied would decline as demand
became ineffective
c. production would increase to meet the demand
d. the government would have to purchase the
surplus
Answer to Question 11
12. Assume some marketing firms had colluded to raise
the price of marketing services. What would be the
effect of government action to control the collusion
and lower the price of marketing services?
a. raise farm price
b. reduce quantity of goods sold at retail
c. reduce farm production
d. increase retail prices
Answer to Question 12
13. Making natural resource investments on the basis of
maximum benefit-cost ratio results in an investment that
a. is probably not optimal
b. is beyond the maximum feasible investment
c. is less than the minimum feasible investment
d. maximizes net social welfare
Answer to Question 13
14. The government should choose the level of
investment in natural resources that would
a. equate marginal benefits and marginal costs
b. maximize gross benefits
c. maximize the ratio of benefits to costs
d. be the maximum feasible investment
Answer to Question 14
15. The correct relationship between producer surplus
and profit is
a. profit plus fixed cost equals producer surplus
b. profit is greater than producer surplus
c. profit plus producer surplus equals total revenue
d. profit plus producer surplus equals total cost
Answer to Question 15
16. Farmers that are risk averse tend to
a. forward contract and diversify
b. specialize in a single commodity
c. make the most risky investments
d. avoid government programs
Answer to Question 16
17. For any given market, which policy would
consumers prefer?
a. production control
b. price support
c. price guarantee
d. paid diversion
Answer to Question 17
18. Excluding administrative costs, which policy would
have the lowest government cost for a given market?
a. paid diversion
b. price support
c. price guarantee
d. production control
Answer to Question 18
19. For any given market, which policy would give the
least producer surplus?
a. paid diversion
b. target price
c. price support
d. production control
Answer to Question 19
20. When government programs raise the price of farm
products farmland prices may increase as a result of
a. technological change which substitutes for land
b. capitalization of program benefits into land
values
c. conservation programs limiting the use of
farmland
d. resultant expansion in exports
Answer to Question 20
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