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Difficulty: MediumDeterminants and Changes in Supply

An increase in government subsidies granted to palm oil processors in Nigeria causes an outward shift of the supply curve for palm oil, whereas a rise in the market price of palm oil results in an upward movement along the existing supply curve.

Answer: Answer

Answer

True. Government subsidies act as a non-price determinant that shifts the supply curve outward (rightward), while a change in the market price of the good causes movement along the existing supply curve.
The statement is true because non-price factors such as government subsidies decrease unit production costs, shifting the supply curve outward (increase in supply), whereas changes in the market price of the commodity alter the quantity supplied, resulting in movement along the existing curve.

Step-by-Step Solution

1
Identify the impact of government subsidies on the supply of palm oil.
Subsidies lower cost of production for processors, shifting the supply curve rightward (increase in supply).
Subsidies are a non-price determinant affecting total production capacity and willingness to sell at all price points.
2
Identify the impact of a market price increase on the supply of palm oil.
An increase in price leads to an upward movement along the existing supply curve (increase in quantity supplied).
According to the law of supply, price changes affect the quantity supplied along a given curve, rather than shifting the curve itself.
3
Evaluate the combined statement for economic validity.
The statement correctly distinguishes between a shift in the supply curve and a movement along the supply curve.
Both clauses accurately reflect standard microeconomic principles.

Key Concept

Distinguishing between a change in supply (shift of the curve due to non-price factors) and a change in quantity supplied (movement along the curve due to price changes).
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Topics

Determinants and Changes in Supply

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