Agricultural economics exam #3

A group of producers organized to gain greater power in the market for its members

Agricultural Bargaining

The merging of two or more firms that operate in unrelated industries.

Conglomerate Merger

Expanding the size of a firm by adding another firm through its purchase or other means of merger.

external growth

A combination of two or more firms operating in the same industry.

Horizontal Merger

Any market structure in which firms do not exhibit the characteristics of perfect competition.

Imperfect Competition

A market in which each firm's demand curve is influenced by the pricing decisions of other firms in that market.

Interdependent Demand Curves

Expanding a firm's capital and facilities as the market for that firm's output grows.

Internal Growth

Competing by product differentiation (advertising, services, or quality) rather than by price.

Nonprice Competition

A market characterized by the small number of firms producing for that market.

Oligopolistic Market

A firm in an oligopolistic market.

Oilgopoly

Combining two or more firms in different stages of production or marketing into one firm.

Vertical Merger

In perfect competition, because of many firms in an industry, individual firms cannot affect price and must

take the market price (MR) as the output price

For pure competition:
The demand curve for the individual firm

The horizontal marginal revenue curve

For pure competition:
The individual firm can sell all of its output in the marketplace for the

market price

For the pure monopolist, the firm's individual demand curve is the

same as the market demand curve

For a pure monopolist: The only way for a pure monopolist to increase its quantity demand is to

decrease the price of the output

For Pure Monopolist: The MR and demand curve

are 2 separate curves

Total Revenue (for pure monopolist) =

(price of good) x ( # of units of good sold)

Marginal Revenue (for pure monopolist)=

(change in total revenue) / ( change in output or sales

The profit maximizing output level for the monopolist is where

MR=MC

MR curve of pure monopolist:

downward sloping and below demand curve of the monopolist

Profit maximizing for pure monopolist: profit per unit output Is determined by

ATC (where MR=MC) - the price the market pays for the good (from the demand curve at the profit maximizing level of output)

Two unique price levels that affect the profit of the monopolist:

price level A and price level B

Price level A:
-Price on demand curve where ---Occurs where the demand curve is
-Benefit??

-MR=MC
-Demand curve tangent to ATC curve
-zero economic rent for monopolist

Price level B:
-Price on demand curve where ---Occurs at the output level that is
-benefit??

-MR=MC
-Minimum cost point on ATC curve
-production costs minimized

The area above or to the left
of the supply curve and below the price line.
Also known as rents.

producer surplus

The area under or to the left
of the demand curve and above the price line.
Also excess utility.

consumer surplus

Price level A may occur because

The demand curve (D) may have shifted downward and to the left making their firm unprofitable (zero economic rents) with their given cost structure (ATC curve).

If demand curve continues to shift downward and to the left below the AVC curve in the short run the monopolist will:

shutdown

The firm in the long-run may choose to reorganize its inputs to lower its costs of products (downward shift its AVC and ATC curves) so as to generate

positive economic rents

The only seller in the market. Barriers to entry that prevent competition from others

pure monopolist

What do the monopolist's demand curve and the market demand curve have in common???

they are one in the same

Why is the monopolist's marginal revenue curve below the demand curve?

Because market demand curves always slope downward to the right.

What do Monopolist and a Purely Competitive Firm have in common?

They both maximize profit the same way.
By producing output where MR = MC

What's different about a Monopolist's and a Purely Competitive Firm's Revenue?

The Monopolist's MR does not equal price!

A Monopolist's selling price always equals

MC at equilibrium output

Is a Monopolist subject to the Law of Diminishing Marginal Returns?

Yes

Why is a monopoly inefficient?

Because the value to society of the last unit produced by the monopolist is always greater than its opportunity cost to society.

Why does it slope downward to the right?

1. A firm in a purely competitive industry faces a horizontal or perfectly elastic demand curve.
2. A firm in a monopoly is the demand curve.

What all does the term "imperfect competition" include?

All market possibilities that do not meet the conditions necessary for pure competition!

In imperfect competition why does one firm's optimizing depend on its competitor price policies?

their demand curves are independent

Why do imperfectly competitive firms avoid price competition?

because of demand interdependencies

Why do we have public (government) regulation of markets?

The intent is to protect the public by preserving competition in markets.

How do firms grow?

by either external or internal expansion or both

Antitrust laws are designed to:

1. Prevent monopolistic firms from driving out competition, and
2. Protect consumers from unfair pricing

Why do agricultural producers form bargaining groups?

to counterbalance buyers' market power

There are special acts by congress that provide

bargaining groups with limited immunity from the antitrust laws

What kind of difficulties do agricultural bargaining groups face?

difficulties in maintaining continued member cooperation

strategies, in which funds are reinvested in the business to expand output or demand.

internal growth

Strategies typically involve mergers or acquisitions. Strategies use corporate funds to purchase other companies.

External Growth

occurs when two or more firms, operating at different levels within an industry's supply chain, merge operations.

vertical merger

If a firm supplying cotton merges with a textile manufacturing company
This is an example of a:

Vertical merger

A merger occurring between companies in the same industry.

Horizontal Merger

A merger between Coca-Cola and the Pepsi beverage division
This is an example of a:

Horizontal merger

A merger between firms that are involved in totally unrelated business activities.

Conglomerate Merger

If a car manufacturing company merges with a restaurant a chain.
This is an example of a:

Conglomerate merger

deals with totals or aggregates, studying characteristics of the entire economy in such dimensions as
total employment, consumer incomes, and general price levels

Macroeconomics

The total market value of all finished goods and services produced within the domestic economy in a given period of time.

Gross Domestic Product (GDP)

GDP can be measured by either

the expenditure method or the income method.

the dollar values of goods and services at their current market prices.

Normal values

the dollar values of goods and services expressed in constant dollars.
also the adjusted values that have removed the effects of inflation or deflation.

Real values

shows the amounts of goods and services that households, businesses, and government are willing to purchase at various price levels during a given period of time.

Aggregate Demand Curve

shows the amounts of goods and services that will be supplied by producers at various price levels during a given period of time.

Aggregate supply curve

occurs when there are no forces in the economy acting to either increase or decrease real GDP

Macroeconomic equilibrium

This equilibrium occurs where AD = AS and determines the general price level and real GDP.

Macroeconomic equilibrium

Shifts in aggregate demand are caused by changes in spending by

consumers, businesses, the government, foreign buyers

Shifts in aggregate supply are caused by changes in

technology,
labor productivity,
input prices, and
other external factors (such as climatic changes) that affect production.

deals with the money supply and credit conditions in the economy.

monetary policy

deals with federal government spending and taxing.

fiscal policy

Changes in monetary and fiscal policies shift the

aggregate demand curve and the aggregate supply curve.

Changes in macroeconomic policies affect

all sectors of the economy, including agriculture.

should increase domestic farm prices, export prices, and input prices, but decrease interest rates.

Expansionary Monetary policy

should have the opposite effects.

contradictory monetary policies

Macroeconomic policies of other nations can offset the intended effects of U.S.

macroeconomic policies

Macroeconomics Studies characteristics of the entire economy such as :

Total employment
Consumer incomes
General price levels

The total market value of all finished goods and services produced within the domestic economy in a given time period.

Gross Domestic Product (GDP)

How can GDP be measured?

expenditure method and income method

When does macroeconomic equilibrium occur?

When there are no forces in the economy acting to increase or decrease real GDP.

What does Monetary Policy have to do with?

Money supply

Credit conditions in the economy

What does Fiscal Policy have to do with?

Federal Government
Spending
Taxing

Changes in Macroeconomic Policy

Affect all sectors of the economy
Including agriculture

Expansionary monetary policy increases:

farm prices, export prices, input prices

Expansionary monetary policy decreases:

interest rates

Expansionary fiscal policy increases:

farm prices, input prices, interest rates

Expansionary Fiscal policy decreases:

farm export prices

National Income Accounting=

Y=C+I+G
aka
income= consumption + investment + government

What happens if this country can sell its products abroad or consume products produced in other countries?

income +imports = consumption+investment+government + exports

The amount of exports relative to imports determines:

whether a country has a trade surplus or a trade deficit.

x= export M = imports
X > M or X - M > 0 signifies

a trade surplus

X < M or X - M < 0 signifies

a trade deficit

X = M or X - M = 0 signifies

balanced trade

A surplus in the balance of trade
Occurs when the value of a country's exports exceed its imports

trade surplus

Also called a trade gap
Occurs when imports exceed exports

trade deficit

involves the government's impact on the economy through taxation and spending.

Fiscal Policy

In the Fiscal Policy as G (government) increases what happens?

all other components of the availability side of the income equation must decrease

involves the government's impact on the economy through the Money Supply and related activities.

Monetary Policy

Implications for agriculture for producers

impact on credit and impact on prices through consumer decisions

Implications for agriculture for consumers

impact on consumption decisions and ag-food share of household budget

deals with totals or aggregates, studying characteristics of the entire economy in such dimensions as
total employment,
consumer incomes, and
general price levels

macroeconomics

Higher value of GDP is something

good or positive for the economy or the country