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Chapters 3 - 8

by: Kimberly Archer

Chapters 3 - 8 AEB 3300

Kimberly Archer
GPA 3.0

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Notes covering the most important material from chapter 3 through 8.
Agriculture/Food Marketing
Study Guide
agriculture, Finance Ag Agriculture Agribusiness Ag Econ, Agriculture Economics, food
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Popular in Food and Resource Economics

This 3 page Study Guide was uploaded by Kimberly Archer on Sunday October 9, 2016. The Study Guide belongs to AEB 3300 at University of Florida taught by in Fall 2016. Since its upload, it has received 8 views. For similar materials see Agriculture/Food Marketing in Food and Resource Economics at University of Florida.

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Date Created: 10/09/16
AEB 3300 – Agriculture/Food Marketing Ag Production - Introduction to an Ag Producer o Perfect competition  “Producers sell an identical product”  “A producer has a relatively small market share”  “A producer is a price taker” - Agricultural Prices o Changes  “Seasonality”  “Supply or demand shocks”  “Market adjustments”  “Changes in long-run supply or demand” o Law of one price – “if transaction costs are zero, price should be identical across regions or time”  “Full price = price + transaction costs” o Arbitrage – “the act of profiting from price differences across markets” - Supply or demand shocks o Supply Shock  “Negative – temporary increase in prices”  “Positive – temporary decrease in prices” o Demand Shock  “Negative – temporary decrease in prices”  “Positive – temporary increase in prices” - Source: “Ag Production.” AEB 3300, University of Florida. Managing Risk - Producer Decision and Risk o “Ag producer decisions can choose  Which commodity to grow  What inputs to use and how much to use  When to sell a commodity  Where to sell a commodity” o Types of Risk  “Price”  “Yield”  “Marketing” - Marketing Risk o Marketing contract – “a contract specifying the amount, price and type of good to be exchanged in advance” o Production contracts  “Producer – supplies growing facilities, labor and is responsible for animal growth”  “Buyer – supplies the animals, feed, and other inputs”  “Typically the farmer is paid a flat fee based on weight and animal performance” - Yield Risk o “Handling Yield Risk”  “Producing in different areas, or even states”  “Planting different varieties of the same crop”  “Planting different crop”  “Known as the portfolio theory” - Introduction to the Futures Market o “The spot market is where a producer sells the actual commodity” o “Price risk occurs because price can decrease from the time a producer starts to grow the commodity and the time the producer sells the commodity in the spot market” o “The futures market is an exchange market where futures contracts are traded” o “Futures contracts are completely standardized contracts that specify a particular commodity, price, quantity, deliver date and possible delivery locations” - Source: “Managing Risk.” AEB 3300, University of Florida. Estimating Supply and Demand - Commodity Supply and Demand o Producers have different supply curves, creating different quantity demanded o Equilibrium – where supply and demand meet  Multiple when there are multiple supply curves - “How to estimate a supply and demand function” o “Fundamental price analysis – price is modeled as a function of supply and demand determinants” - Source: “Estimating Supply and Demand.” AEB 3300, University of Florida. Elasticities - “Introduction to Elasticities” o “Elasticities – measure of how quantity demanded or quantity supplied changes due to a change in price of a good or income” o “How do I respond in changes in the price of beer?”  “Own-price elasticity”  “Price of beer decreases – quantity demanded of beer increases”  “Cross-price elasticity”  “Price of bourbon (substitute) increases – quantity demanded of beer increases”  “Price of pizza (compliment) decrease – quantity demanded of beer increases”  “Income elasticity”  “Get a pay raise – quantity demanded of beer increases” - “Own – price elasticities” o “Own-price elasticity of demand”  “Measures the percent change in quantity demanded due to a percent change in price”  “Implicitly negative”  “Law of demand tells us that price and quantity demanded move in opposite directions” - “Cross-Price and Income Elasticities” o “Cross-price elasticity of demand”  “Measures the percent change in quantity demanded due to a percent change in price of another good”  “Substitutes”  “Complements”  “Unrelated” o “Income elasticity of demand”  “Measures the percent change in quantity demanded due to a percent change in income”  “Normal good”  “Inferior good” - Source: “Elasticities.” AEB 3300, University of Florida. The Importance of Elasticity of Demand - International trade - Formulation of Government Policies - Factor Pricing - Decisions of Monopolist - Paradox of poverty amidst plenty - Source: “The Importance of Elasticity of Demand (5 Important Points). (2013). Retrieved October 09, 2016, from demand-5-important-points/8964/


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