Theory question 101
ElasticityThe supply situation for rice in country X over a period is as shown in the table below. Use the information in the table to answer the questions that follow:
Periods | Price ($) | Quantity Supplied (bags)
December 2004 | 30 | 100
January 2007 | 40 | 150
April 2009 | 50 | 160
(a) Calculate the co-efficient of price elasticity of supply for rice between December 2004 and January 2007.
(b) Is the supply of rice elastic or inelastic? Give a reason for your answer.
(c) State any three reasons which may cause an increase in the supply of rice.
Show the model answer
(a) % change in quantity supplied = (150 − 100)/100 × 100 = 50%
% change in price = (40 − 30)/30 × 100 = 33.3%
Es = 50 ÷ 33.3 = 1.5
(b) Elastic, because the coefficient (1.5) is greater than 1: quantity supplied changed by a bigger percentage than price.
(c) Any three: improved technology/mechanised farming; fall in the cost of inputs (fertiliser, seeds, labour); good weather; government subsidies or tax relief; fall in the prices of other crops farmers could grow; more producers/importers; better storage and transport.
Use the original values (December 2004) as the base.