WAEC Economics 2013 Theory — Question 8

Model answer

(a) Competitive supply is the type of supply in which two (or more) products are produced with the same resources, so the supply of the two is competing for the same limited resources. (b) A supply schedule is a table which shows the different quantities supplied at various market prices (e.g., a weekly supply of eggs by a seller as price changes: at ₦100, 50 crates supplied; at ₦120, 70 crates; at ₦150, 90 crates; at ₦180, 110 crates). A supply curve is a curve/graph that shows the relationship between price and quantity supplied — it is the graphical presentation of the information in the supply schedule. (c)(i) An improvement in technology leads to an increase in supply — a rightward shift, because production becomes cheaper and faster. (ii) A rise in input prices causes a decrease in supply — a leftward shift, because a rise in input prices increases production cost. (iii) A rise in the price of other commodities can affect supply in two ways: if the two goods have joint supply, an increase in the price of one will lead to an increase in the supply of the other (they are produced together); if they have competitive supply, a rise in the price of one will lead to a fall in the supply of the other (as resources are diverted to the more profitable good). (iv) An increase in government subsidies on production will lead to an increase (outward shift) in supply, since it lowers the effective cost of production for producers.