Policy & Cooperatives — Agriculture Economics Reviewer Questions

Sample Policy & Cooperatives questions with answers and explanations

Board-style items taken from the Agriculture Economics bank. Every answer is explained, which is the part that makes a review question worth doing twice.

1. An irrigation project costs PHP 5,000,000 and yields benefits with a present value of PHP 6,500,000. What is the benefit-cost ratio, and is the project acceptable?

   • A. 1.30 -- acceptable, because benefits exceed costs correct
   • B. 0.77 -- unacceptable, because costs exceed benefits
   • C. 1.30 -- unacceptable, because the ratio must exceed 2.0
   • D. 1,500,000 -- acceptable, because net benefit is positive

   Why: BCR = 6,500,000 / 5,000,000 = 1.30. Any ratio above 1.0 means discounted benefits exceed discounted costs and the project is economically justified. The PHP 1,500,000 figure is net present value, a related but distinct criterion.

2. A postharvest facility costs PHP 800,000 and returns PHP 200,000 a year. What is the simple payback period?

   • A. 2.5 years
   • B. 4 years correct
   • C. 5 years
   • D. 0.25 years

   Why: 800,000 / 200,000 = 4 years. Simple payback ignores the time value of money and anything that happens after recovery, so it is a screening device rather than a decision rule -- two projects with equal payback can differ greatly in total worth.

3. An investment returns PHP 100,000 two years from now. At a 10% discount rate, what is its present value?

   • A. PHP 90,909
   • B. PHP 121,000
   • C. PHP 82,645 correct
   • D. PHP 80,000

   Why: PV = 100,000 / (1.10)^2 = 100,000 / 1.21 = PHP 82,645. Discounting for only one year gives PHP 90,909; multiplying instead of dividing gives PHP 121,000, which is the FUTURE value and the opposite of what was asked.

4. A cooperative has 250 members, each holding one vote regardless of shares. A member with 40 shares proposes voting weighted by shareholding. What principle would this violate?

   • A. Open and voluntary membership
   • B. Autonomy and independence
   • C. Concern for community
   • D. Democratic member control -- one member, one vote correct

   Why: Cooperatives are distinguished from corporations precisely by separating control from capital: each member has one vote whatever their shareholding. Weighting by shares would convert the cooperative into a stock corporation in all but name.

5. A cooperative earns net surplus of PHP 600,000. If 30% goes to reserves and the rest is distributed as patronage refund, how much does a member transacting 5% of total volume receive?

   • A. PHP 21,000 correct
   • B. PHP 30,000
   • C. PHP 9,000
   • D. PHP 18,000

   Why: Reserves take PHP 180,000, leaving PHP 420,000 for distribution; 5% of that is PHP 21,000. Patronage refunds are proportional to BUSINESS DONE with the cooperative, not to shares held -- which is the practical expression of the cooperative principle.

6. Government sets a palay support price of PHP 23/kg when the market price is PHP 19/kg. What is the immediate consequence?

   • A. A shortage as consumers increase purchases
   • B. A surplus that government must buy and store correct
   • C. No effect, because the market clears at PHP 19
   • D. Farmers reduce planted area in the next season

   Why: A price floor above equilibrium raises quantity supplied and lowers quantity demanded, creating surplus that the supporting agency must absorb. The fiscal cost of that procurement and storage is the usual reason such programmes are eventually scaled back.

7. A tariff is placed on imported rice. Who gains and who bears the cost?

   • A. Consumers gain from lower prices; producers lose
   • B. Everyone gains because domestic production rises
   • C. Domestic producers and government gain; consumers pay higher prices correct
   • D. Only importers gain, through higher volumes

   Why: A tariff raises the domestic price, transferring surplus from consumers to producers and generating revenue for government. The net effect on national welfare is usually negative because of deadweight loss -- gains to producers are smaller than losses to consumers.

8. A farmer chooses between a certain PHP 40,000 and a gamble paying PHP 90,000 with probability 0.5 or PHP 0 otherwise. Choosing the certain sum indicates what?

   • A. Risk neutrality, since the two are equivalent
   • B. Risk seeking, since the certain sum is safer
   • C. An arithmetic error, since PHP 40,000 exceeds the expected value
   • D. Risk aversion, since the gamble's expected value of PHP 45,000 is higher correct

   Why: Expected value of the gamble = 0.5 x 90,000 = PHP 45,000, above the certain PHP 40,000. Preferring the smaller certain amount means the farmer will pay PHP 5,000 to avoid variability -- the definition of risk aversion, and the reason crop insurance can be worth buying.

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