Recall the Application About the Drought in Australia and Its

question 26

Multiple Choice

Recall the Application about the drought in Australia and its impact on the price of rice. In 2008, the
continuation of a 6-year drought in Australia reduced the amount of water available to irrigate Australia’s
rice crop. Farmers responded by reducing the amount of land devoted to rice. The drought was a major
factor in the change of rice prices.
-According to this Application, farmers reducing the amount of land devoted to growing rice has _______ the equilibrium price of rice and _______ the equilibrium quantity of rice.

• A)increased; increased
• B)increased; decreased
• C)decreased; decreased
• D)decreased; increased

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Definitions:

Variable Costing

An accounting method that includes only variable production costs (costs that change with the level of production) in product costs.

Absorption Costing

A financial accounting technique that integrates all production expenses, including direct materials, direct labor, along with all variable and fixed manufacturing overhead costs, into the product's cost.

Variable Production Costs

Costs that vary directly with the level of production output, such as raw materials and labor expenses.

Fixed Production Costs

Payments that stay unchanged regardless of how much is produced or sold, covering rent, salaries, and insurance.