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Difficulty: HardTypes of Supply

A rubber manufacturing firm in Ogun State utilizes a fixed capacity of raw latex and machinery to produce either industrial conveyor belts or motorcycle tires. If a surge in mining activities leads to a significant increase in the market price of industrial conveyor belts, what is the immediate effect on the market for motorcycle tires?

  1. A
    The supply curve of motorcycle tires will shift to the right because the two goods are in joint supply.
  2. The supply curve of motorcycle tires will shift to the left because the two goods are in competitive supply.Answer
  3. C
    The quantity supplied of motorcycle tires will increase along its supply curve due to derived supply.
  4. D
    The supply of motorcycle tires will remain unchanged because the products serve completely different consumer markets.

Answer

The supply curve of motorcycle tires will shift to the left because the two goods are in competitive supply.
The correct answer states that the supply curve of motorcycle tires shifts to the left due to competitive supply. When two goods rely on the same factor inputs, an increase in the market price of one good makes its production more profitable, causing producers to reallocate factors of production away from the alternative good, thereby shifting its supply curve inward.

Step-by-Step Solution

1
Identify the relationship between the two goods on the supply side
Industrial conveyor belts and motorcycle tires use the same pool of limited inputs (raw latex, machinery, labor), meaning they are in competitive (or alternative) supply.
When inputs can be switched between producing Good X or Good Y, the goods compete for production resources.
2
Analyze the producer response to the price change of industrial conveyor belts
The higher market price of conveyor belts increases their relative profitability, prompting the firm to shift resources toward producing conveyor belts.
Profit-maximizing producers allocate resources to goods offering higher returns.
3
Determine the impact on the supply of motorcycle tires
Fewer resources are dedicated to motorcycle tires, leading to a decrease in supply (a leftward shift of the supply curve) at every price level.
A reduction in available production inputs decreases total supply.

Key Concept

Competitive Supply
Estimated Time:1m 30s
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Topics

Types of Supply

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