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Question

Difficulty: HardDeterminants and Changes in Supply

A cocoa processing firm in Nigeria faces various market developments and regulatory shifts. Match each economic scenario on the left with its corresponding impact on the supply of processed cocoa on the right.

  • Introduction of advanced automated processing technology that increases output efficiency per worker.Rightward shift of the supply curve driven by technological advancement.
  • A sharp rise in the market selling price of processed cocoa flour.Upward movement along the existing supply curve indicating an increase in quantity supplied.
  • An increase in the import duty levied on essential processing chemicals.Leftward shift of the supply curve caused by an increase in input production costs.
  • Provision of a direct per-unit financial grant by the government to local cocoa processors.Rightward shift of the supply curve resulting from reduced unit costs via state intervention.

Answer

Advanced automated processing technology matches with a rightward shift of the supply curve driven by technological advancement. A sharp rise in market selling price matches with an upward movement along the existing supply curve indicating an increase in quantity supplied. An increase in import duty on processing chemicals matches with a leftward shift of the supply curve caused by higher input costs. Provision of a direct per-unit financial grant matches with a rightward shift resulting from reduced unit costs via state intervention.
Each scenario correctly applies the economic principles of supply determinants: price variations of the product itself produce movements along the curve, while non-price parameters like technological innovation, input taxation, and government subsidies shift the supply curve in directions dictated by their net effect on production costs.

Step-by-Step Solution

1
Differentiate between factors that shift the supply curve and factors that cause movement along the supply curve.
Identified that own-price changes alter quantity supplied (movement along the curve), while non-price determinants (technology, input prices, government taxes/subsidies) alter supply (shift of the curve).
The law of supply establishes price-quantity relationships along a given schedule, whereas external non-price factors re-establish a completely new supply schedule.
2
Evaluate the effect of technological innovation.
Technological progress increases output per unit of input, lowering marginal cost and shifting the supply curve rightward.
Firms can produce more efficiently at existing market prices.
3
Evaluate the effect of a change in own-price.
An increase in the commodity's selling price leads to an upward movement along the current curve.
Producers expand output along their existing production frontier to capitalize on higher profit margins per unit.
4
Analyze government policies and input price changes.
Increased duties on inputs raise costs (shifting supply leftward), while subsidies reduce costs (shifting supply rightward).
Taxes act as cost additions whereas subsidies act as cost reductions.

Key Concept

Distinction between Shifts in Supply and Movements along the Supply Curve
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Topics

Determinants and Changes in Supply

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