Study marketing test 4 Flash Cards

 
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marketing test 4

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A lag in prices is often used in supply equation estimation because it often takes time for production to respond to an increase in prices. T/F
True
A time tren variable is often included in estimation because it is used to represent technical change over time. T/F
True
A longer time series of data (more observations) will always be better than fewer observations. T/F
False
A lagged dependent variable usually improves estimation because it provides a representation of all the omitted variables for the dependent variable. T/F
True
a quadratic function is useful when the price an quantity are non-linear. T/F
True
a supply flexibility is defined as -1/Es. T/F
True
A supply curve may have a negative (price inc causes quantity dec) in the very short run in commodities such as cattle. T/F
True
The value of R2 can be positive or negative. T/F
False
a change in the number of producers raising hogs will shift the supply curve for hog production. T/F
True
to estimate a supply curve you use the method of minimizing the errors of the equation. T/F
False
suppose the elasticity of supply is .25. what is the flexibility of supply ?
-4
which type of equation has an elasticity represented by 2b*p^2/Q?
quadratic
what type of variable would acreage planted represent in a supply equation?
a. input price variables
b. technology or input cost variable
c. supply produced variable
d. acreage would not be a variable to consider in crop production
a
which of the following must be true if you shift supply?
a. the slope of the supply curve changes.
b. the supply curve will slope downward.
c. the supply curve will be vertical.
d. at a given price the quantity will inc or dec
d
in ag commodities, most supply elasticities are expected to be:
a. >1
b. = 1
c. b/t 0 &1
d. = 0
c
an elasticity value greater than one is said to be:
a. elastic
b. inelastic
c. infinitely elastic
d. unitary elastic
a
movements along the supply curve represents a:
a. change in supply
b. change in production function
c. change in elasticity
d. change in the quantity supplied
d
which of the following represents the individuals supply curve?
a. Average cost curve
b. marginal cost curve
c. total cost curve
d. variable cost curve
b
The non-economic basis of supply is?
a. a preference function
b. a production function
c. a cost function
d. a supply curve
b
A genetically modified corn variety with improved yields would be expected to shift the supply curve for corn. T/F
True
Time lags are frequently required in estimating supply equations b/c of real world lags between observed prices and the actual production change. T/F
True
Estimating a supply equation is a 4 step process including: selection of variables, collection of data, selection of functional form and the actual estimation. T/F
True
The supply elasticity of a linear supply function is represented simply by the coefficient on the output price of the equation. T/F
False
A t-statistic provides an indication of the significance of a specific coefficient. T/F
True
The supply of livestock in the next month is expected to be relatively inelastic. T/F
True
Input prices enter the supply function through the cost function. T/F
True
Supply shifters represent a change in the quantity supplied rather than a change in supply. T/F
False
a Production function does not include any economic relationships, but only technical relationships between inputs and outputs. T/F
True
Storage costs include the cost to ship a product from one location to another.
T/F
False
why does a lagged dependent variable tend to improve supply estimation?
a. it provides a way to include previous information on the quantity produced into the current estimation
b. it provides additional data
c. it does not typically improve supply estimation
d. it includes forecast information on quantities and prices
a. it provides a way to include previous info on the quantity produced into the current estimation
A scatter plot of supply data is a plot of which variables?
a. price and time
b. quantity and time
c. price and quantity
d. input price and output price
c. price and quantity
If you were attempting to estimate the supply behavior of cattle markets over cattle cycles which last on average 10 years, which duration and periodicity would you prefer?

a. 10 years of annual data
b. 5 years of monthly data
c. 1 year of weekly data
d. 100 years of annual data
d. 100 years of annual data
which of the following terms refers to the difference in prices between two locations?
a. spatial basis
b. temporal basis
c. transformation basis
d. futures basis
a. spatial basis
suppose you have estimated a supply equation as Q = 5.42 + .73 * 3 and the average price is $4/bushel, the average quantity is 10 million bushels and the R2 value is .91. what is the elasticity of supply?
0.29
which of the following statements best describes the interpretation of R2 when estimating a supply equation?
a. the significance of an estimated coefficient
b. the amount of variation explained by the equation
c. the elasticity of supply
d. the slope of the supply curve
b. the amount of variation explained by the equation
which of the following is not a cost related to storage?
a. freight cost
b. depreciation costs
c. interest costs
d. product spoilage
a. freight cost
a supply curve is derived from the sum of the:
a. average cost curves
b. production function
c. demand curves
d. marginal cost curves
d. marginal cost curves
which functional form yields a non-linear supply curve?
a. double log
b. linear
c. quadratic
d. all
c. quadratic
why don't producer's adjust to take advantage of seasonal price patterns?
1. prices are poor indicators of profits. For example, feed costs are typically highest in the spring and summer before the new crop -- therefore, seasonal price is likely to occur at time of higher costs. In the case of beef it still appears to be cheaper to graze available grass than to harvest and store hay and corn

2. weather conditions still affect productivity and costs of production -- more expensive to keep animals in confinement in weather extremes.
Entering seasonal patterns can be helpful for short term marketing decisions:
1. entering into seasonal increase, may store crops longer to gain higher prices or put additional weight on livestock to gain from price increase

2. entering into seasonal decline, may sell animals at slightly lighter weights or market grains sooner
why is a seasonality index used?
because it adjusts for year to year price differences which occur.
how are seasonality charts created?
seasonality index = average monthly price/average annual price

for each year and for each month
seasonality demand factors
holidays do have some short term effects - easter on pork and lamb thanksgiving on turkeys
-summer is traditionally high in meat consumption period - more people active and simply eat more - outdoor grilling has an effect
seasonality supply factors (shifts)
weather: effects on performance - particularly strong in cattle not as strong in swine in poultry which are confined
Biological relationships: harvest, storage - calving is primarily in the spring
Seasonality
refers to predictable price patterns which occur within a year
Elasticity of natural logs
d ln Q/d ln P
Elasticity of supply for a quadratic equation
Es = (b1 + b2 * P) * P/Q
linear equations: elasticity
Qs = a + b * P
Elasticity of Supply in most general terms:
E = change in Qs / Change in P * P/Q
Log-Linear
Log-Linear functions are in the same form as linear functions but the variables are first "transformed" by taking their natural logarithm usually noted by the notation ln. So, w/the linear form, the log-linear equation is:

ln Qs = a + b * lnP
Quadratic Function
a simple non-linear representation often used in estimation. A quadratic supply equation w/only the out price can be represented as:

Qs = a + b1 * P + b2 * P2
lagged supply
The logic basically says that from year to year there are many factor that determine supply, but in most cases these factors remain somewhat stable (land, weather....) so that last year's observation of supply which included by extension all these background factors is a good predictor of what will happen this year.

Qs= a + b * Pt + b2 * Qz, t-1
Supply Shifters
1. change in the price of inputs to production
2. technology
3. number of sellers
4. future price expectations
5. taxes subsidies
6. government restrictions
7. weather
8. prices of related goods
What is generally the elasticity in the long run for producers?
In the long run all factors are variable and the supply is perfectly elastic. That is, producers can increase quantitates to any amount dedicated by price levels
What is generally the elasticity in the short run for producers?
in the short run, it is impossible for producers to respond to changes in price. Hence, thee supply in perfectly inelastic. In this case all factors (inputs) are fixed
Perfectly elastic supply
infinity
Elastic Supply
E > 1
perfectly inelastic supply
E = 0
inelastic supply
0< E<1
average cost
cost per unit of output cost = r*x
marginal cost
cost of producing one more unit of output
Producers attempt to minimize costs, so this is why it is in their best interest to produce on the production function rather than under it. T/F
True
Cost of Production
Cost (C) = r*x: y = f(x)
where r = input price, x = input quantity, y = output
Law of Diminishing Marginal Product
at some point, as add more variable input to a fixed input to a fixed input, the increase in out declines
Producers can produce over the production function. T/F
False
Producers can produce on the production function. T/F
True: BEST!!
Producers can produce under the production function. T/F
True
No output can be produced without input. T/F
True
What is the X and Y in a production function?
X: input (corn, soybeans, medication, labor)
Y: output (swine, cattle, beef, pork, chickens)
What is a production function?
it is a function that explains the relationship of inputs to outputs and tells us what is possible to produce in the real world. IT leads to cost b/c it tells us the quantities of inputs we will need to obtain a desired level of output or conversely, the output level we can achieve with a given level of inputs and we must pay for those inputs.
How are prices in a "perfect market" determined?
By the interaction of supply and demand. Producers generate supply and consumers generate demand, and the market interaction determines prices.
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