Theory question 107
Theory of Supply(a) What is competitive supply?
(b) With the aid of illustrations, differentiate between a supply schedule and a supply curve.
(c) Explain how the supply of a commodity is affected by the following: (i) an improvement in technology; (ii) a rise in input prices; (iii) a rise in the prices of other commodities; (iv) an increase in government subsidies on production.
Show the model answer
(a) Competitive supply occurs when goods compete for the same resources, so producing more of one means producing less of the other (e.g. cocoa and coffee on the same land).
(b) A supply schedule is a table showing quantities supplied at different prices (illustrate with a small table); a supply curve is the graph of that schedule, sloping upward from left to right (illustrate with a sketch).
(c)(i) Better technology lowers costs, so supply increases (curve shifts right).
(ii) Higher input prices raise costs, so supply decreases (shift left).
(iii) Higher prices of other goods make them more profitable, so producers switch resources away and supply of this commodity falls.
(iv) Subsidies reduce costs, so supply increases (shift right).
A schedule is a table; a curve is its graph.