Marketing of Ag Products Exam 1

In general, prices are determined by four forces. List and briefly explain the four forces.

1. The opportunity cost of production – This means the price must cover the cost of production.

2. Consumer value – This means the price must be set to match what consumers are willing to pay.

3. Negotiating power – If there are many competitors, consumers have more negotiating power, and if there are few competitors, producers have more negotiating power.

4. Psychological and social considerations – The price must pass a social test.

Most farmers and many agribusiness firms have no significant influence on market prices (they operate under a competitive model)

True

At any given moment, existing prices are determined by past and current decisions of all market participants.

True

The more perishable the commodity is, the more able sellers are to wait for a better price.

False

What is Market Clearing?

The process of the market price adjusting so that all buyers and sellers wishing to trade at that price can do so

The supply curves in figure 1 are for a perishable crop.

False

The supply curves in figure 2 are for a nonperishable crop.

False

A merit of the micro definition of marketing is the emphasis on the active role required of the firm’s management.   

True

A merit of the macro definition of marketing is the emphasis on the active role required of the firm’s management.

False

What does an effective micro marketing strategy involve. Mention two points.

An effective micro-marketing strategy focuses on targeting a specific defined group of consumers. Two points are precise consumer segmentation which is identifying specific consumer segments based on traits, demographics, etc, and also highly tailored product and marketing mix, which is customizing the product features, pricing, promotional messaging, etc to directly meet the unique needs and preferences of targeted niche.

Define micro view of marketing

The performance of business activities that direct the forward flow of goods and services to consumers and accomplish the farmer’s or the firm’s objective

The Macro view of marketing is a description of the total system for marketing food and fiber. 

True

The Micro view of marketing is a description of the total system for marketing food and fiber. 

False

In viewing agriculture marketing from the macro perspective, one can adopt three approaches. What macro approach emphasizes the functions performed in marketing. Choose one.

Functional Approach

In viewing agriculture marketing from the macro perspective, one can adopt three approaches. What macro approach focuses on the interdependence and coordination of all participants and all the functions of the entire system. Choose one.

Behavioral Systems Approach

What macro approach emphasizes the key institutions and institutional players

Institutional Approach

The Institutional Approach of macro marketing is the “who” of marketing.

True

The Functional Approach of macro marketing is the “who” of marketing.

False

The Behavioral Approach of macro marketing is the “who” of marketing.

False

The Institutional Approach of macro marketing is the “what” of marketing.

False

The Functional Approach of macro marketing is the “what” of marketing.

True

The Behavioral Approach of macro marketing is the “what” of marketing.

False

Macro view of marketing channels is the set of firms that move a commodity from the farm to the consumer. 

True

Give an example of value addition in marketing

An example of value addition is processing raw wheat into flour or bread. Value addition occurs when a firm changes the form, place, time, or possession of a product to make it more useful to consumers.

Changes in quantity demanded represent a movement along the demand curve (own price change).

True

Changes in quantity demanded represent a shift in the demand curve (own price change)

False

List three (3) demand curve shifters.

Income, consumer preferences, and number of buyers.

List  three (3) supply curve shifters.

Input prices, technology, and number of sellers.

List three (3) characteristics of perfect competition

Many buyers and sellers, homogeneous products, and free entry and exit.

Question: Market Equilibrium in an Agricultural Market

Suppose the demand and supply functions for a particular agricultural commodity, such as soybeans, are given by:

Qd = 120-4P

Qs = 20+6P

where:

• Qd = quantity demanded (thousand tons)

• Qs = quantity supplied (thousand tons)

• P = price per unit (dollars)

Answer the following questions:

1. Calculate the equilibrium price of soybeans by setting quantity demanded equal to quantity supplied (1 point).

2. Calculate the equilibrium quantity at the equilibrium price (1 point).

3. Briefly explain what the equilibrium price and quantity mean for soybean producers and consumers (1 point).

4. Suppose the government introduces a price of $12 per unit. Determine whether the market experiences a shortage or surplus, and calculate its size (2 points).

120-4P=20+6P

120=20+10P

100=10P

P=$10 per unit

Qd=120-4(10)

Qd=120-40=80 thousand tons

For producers the $10 equilibrium price ensures that they can sell exactly the amount of soybeans they want to produce 80 thousand tons without leaving any unsold stock. For consumers the equilibrium price ensures that every consumer willing and able to buy soybeans at $10 can find a seller, leaving no unfilled demand.

Qd=120-4(12) = 120 - 48 - 72 thousand tons

Qs=20+6(12) = 20+72=92 thousand tons

Because the price is higher than the equilibrium price, the quantity supplied exceeds the quantity demanded and therefore there is a surplus.

Surplus = 92-72=20 thousand tons

What is food at home

consumption originates from the retail grocery sector, which includes supermarkets and other grocery stores, and warehouse club stores

what is food away from home

originates in the food service sector (hotels, restaurants, etc)

marketing bill or marketing margin

The money spent on taking a farm product (e.g, a live animal or a bushel of raw corn), processing it into a consumer product, and marketing the product

what are the 4 types of utility

1. form utility

2. time utility

3. place utility

4. possession utility

form ultility

the process of transforming raw agricultural raw materials into finished or semi-finished goods that are more useful and attractive to consumers

time utility

The activity of delivering food products at the time consumers desire them yields time utility

place utility

the activity of delivering food to a convenient location for purchase yields place utility.

posession utility

Selling the product so the consumer legally owns and can use it

supply

is the quantity of a product or service that producers are willing and able to sell at different prices, holding other factors constant.

what does the supply curve tell us

it tells us how many more units will be produced as the price increases and how many fewer units will be produced as the price decreases

a change in quantity supplied is

a movement along the supply curve

a change in supply is

a shift of the supply (curve)

shifts in supply are caused by

1. price of related outputs

2. price of inputs

3. technology

what is demand

the quantity of a good or service that consumers are willing and able to purchase at different prices, during a given period, holding other factors constant

what is a change in quantity demanded

a movement along the demand curve

what is a change in demand

a shift of the demand (curve)

shifts in the demand curve are caused by

1. change in income

2. price of related goods (substitutes and complements)

3. consumer tastes and preferences

4. changes in population

5. changes in expectations

6. number of consumers

normal good

demand rises as income rises, and demand falls as income falls e.g Dr. Pepper is a normal good

inferior good

Demand for the good falls as income rises, and demand for the good rises as income fall. For example Dr. Thunder is an inferior good

law of supply

More will be offered at higher prices than at lower prices, ceteris paribus

law of demand

Less will be desired at higher prices than at lower prices, ceteris paribus

characteristics of perfect competition

1. homogenous products

2. many buyers and sellers

3. one can become a buyer or seller with relative cause

4. information on how to produce and use the good is freely available

price taker

When there are many buyers and sellers and all have roughly equal negotiating power, buyers and sellers tend to take the `price as given – that is, every market participant is a price taker

market clearing

the process of the market price adjusting so that all buyers and sellers currently wishing to trade at that price can do so

macro view

a description of the total system for marketing food and fiber

macro marketing

the performance of all business activities involved in the forward flow of goods and services from producers to consumers

macro view of marketing channels

the set of firms that move a commodity from the farm to the consumer

Three approaches to the study of marketing agricultural products

1. Institutional Approach

2. Functional Approach

3. Behavioral Approach

Institutional Approach

Emphasizes the key institutions and institutional players-the “who” of marketing

Functional Approach

emphasizes the functions performed in marketing. This is a “what” approach, focusing on specialized activities within the marketing process

behavioral approach

Emphasizes the interdependence and coordination of all participants and all the functions of the entire system – combines institutional and functional approaches

micro marketing

the performance of business activities that direct the forward flow of goods and services to consumers and accomplish the farmer’s or the firm’s objective

Merit of micro definition of marketing

A merit of the micro definition of marketing is the emphasis on the active role required of the firm’s management.

micro procurement

the performance of business activities that direct the flow of agricultural commodities to a firm to satisfy its objectives

consumption originates from the retail grocery sector

food at home

consumption originates in the food service sector

food away from home

True or False: production is the creation of utility, or value or happiness

True

the activity of delivery food products at the time consumers desires them yields

time utility

selling the product so the consumer legally owns and can use it yields

possession utility

the activity of delivering food to a convenient location for purchase yields

place utility

the process of the market price adjusting so that all buyers and sellers wishing to trade at the price can do so

market clearing

pasta and pasta sauce are examples of

complements

True or False: For an inferior good demand rises as income rises, and demand falls as income falls

False

True or False: A movement along the demand curve is a change in demand

False

True or False: a shift of the demand (curve) is a change in demand which are due to exogenous factors

True

True or False: The vertical arm of the supply curve for perishable crops reflects the maximum total amount available for harvest

True

True or False: Storage is an alternative for perishable crops

False