A good number of candidates attempted this question and scored above average. Few of the candidates could not cite relevant examples to explain competitive supply in the (a) part and the figures used as price and quantity supplied in the supply schedule did not conform to the law of supply, hence a normal supply curve could not be derived in the (b) part. Many candidates could not really explain how the factors listed in the(c) part of the question will affect supply of a commodity
The candidates were expected to answer thus:
(a) Competitive supply is when two or more products are produced using the same resources such that an increase in the production of one leads to reduction in the supply of the other.
(b) A supply schedule is a table showing the various prices and quantities of a commodity which sellers are willing to offer for sale at a given period.
Illustration
| Price($) | Quantity Supplied(tonnes) |
| 10 | 100 |
| 9 | 80 |
| 8 | 50 |
While a supply curve is graphical representation of various quantities of a commodity which sellers are willing to offer for sale at various prices.
(c) (i) An improvement in technology would raise the productivity of inputs and increase production, all things being equal. As production increases, supply would increase.
(ii) A rise in input prices would increase the cost of production. All things being equal, production would decrease and supply would decrease.
(iii) A rise in the price of other commodity would make their production more profitable, all things being equal. As a result, resources would shift into the production of these commodities and decrease the production and supply of the other commodity.
(iv) An increase in government subsidies on production will reduce the cost of production which will lead to an increase in the production and supply of the product.
What Is Change In Supply?
Change in supply refers to a shift, either to the left or right, in the entire price-quantity relationship that defines a supply curve.
Key Takeaways
- Change in supply refers to a shift, either to the left or right, in the entire price-quantity relationship that defines a supply curve.
- Essentially, a change in supply is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price.
- A change in supply can occur as a result of new technologies, such as more efficient or less expensive production processes, or a change in the number of competitors in the market.
- A change in supply is not to be confused with a change in the quantity supplied.
Understanding Change in Supply
A change in supply is an economic term that describes when the suppliers of a given good or service alter production or output. A change in supply can occur as a result of new technologies, such as more efficient or less expensive production processes, or a change in the number of competitors in the market.
A change in supply leads to a shift in the supply curve, which causes an imbalance in the market that is corrected by changing prices and demand. An increase in the change in supply shifts the supply curve to the right, while a decrease in the change in supply shifts the supply curve left. Essentially, there is an increase or decrease in the quantity supplied that is paired with a higher or lower supply price.
A change in supply shouldn't be confused with a change in the quantity supplied. The former causes a shift in the entire supply curve, while the latter results in movement along the existing supply curve.
The general consensus amongst economists is that these are the primary factors that cause a change in supply, which necessitates the shifting of the supply curve:
- Number of sellers
- Expectations of sellers
- Price of raw materials
- Technology
- Other prices
For example, if a new technology reduces the cost of gaming console production for manufacturers, according to the law of supply the output of consoles will increase. With more output in the market, the price of consoles is likely to fall, creating greater demand in the marketplace and higher overall sales of consoles. This technological advancement has caused a change in supply.
Supply and Demand Curves
The effects of changing supply and demand are found by plotting the two variables on a graph. The horizontal X-axis represents quantity and the vertical Y-axis represents price.
The supply and demand curves intersect to form an "X" in the middle of the graph; the supply curve points upward and to the right, while the demand curve points downward and to the right. Where the two curves intersect is the price and quantity, based on current levels of supply and demand.
A positive change in supply when demand is constant shifts the supply curve to the right, which results in an intersection that yields lower prices and higher quantity. A negative change in supply, on the other hand, shifts the curve to the left, causing prices to rise and the quantity to decrease.
Change in Supply Example
During the early 2010s, the development of hydraulic fracturing, or "fracking", as a method to extract oil from shale rock formations in North America caused a positive change in supply in the oil market. Non-OPEC oil production rose by over one million barrels per day, with most of the oil coming from fracking activity in North America.
Because of the increase in the supply of oil, the per-barrel price of oil, which had reached an all-time high of $147 in 2008, plunged as low as $27 in Feb. 2016. Economists predicted that lower prices would create greater demand for oil, although this demand was tempered by deteriorating economic conditions in many parts of the world.