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Difficulty: MediumDeterminants and Changes in Supply

Match each economic event affecting cassava flour processing in Nigeria on the left with its corresponding effect on the supply curve of cassava flour on the right.

  • A government waiver of import duties on commercial cassava processing machineryRightward shift of the supply curve (Increase in supply)
  • A sharp rise in the market price of cassava starch, an alternative output requiring raw cassava tubersLeftward shift of the supply curve due to competitive supply
  • An increase in the statutory minimum wage paid to processing factory workersLeftward shift of the supply curve due to increased cost of production
  • An increase in the current market price of cassava flourUpward movement along the existing supply curve (Increase in quantity supplied)

Answer

1. Import duty waiver on processing machinery matches Rightward shift of the supply curve (Increase in supply).
2. Rise in market price of competitive output (cassava starch) matches Leftward shift of the supply curve due to competitive supply.
3. Increase in worker minimum wage matches Leftward shift of the supply curve due to increased cost of production.
4. Increase in current market price of cassava flour matches Upward movement along the existing supply curve (Increase in quantity supplied).
Each economic scenario matches its standard economic effect on supply: government duty relief shifts supply rightward by lowering production cost; a higher price for a product in competitive supply diverts raw materials and shifts supply leftward; increased labor wages raise cost of production and shift supply leftward; and an own-price change results in a movement along the curve.

Step-by-Step Solution

1
Analyze non-price technological/policy factors.
Import duty waivers lower production equipment costs, causing a rightward shift of the supply curve (increase in supply).
Lower capital input costs enhance profitability across all output levels.
2
Evaluate competitive supply relationships.
When a substitute in production (cassava starch) becomes more lucrative, resources shift toward starch and away from cassava flour, causing a leftward shift in flour supply.
Producers reallocate limited raw materials to the higher-priced alternative output.
3
Assess labor cost impacts.
Higher wage rates increase marginal production costs, shifting the supply curve of cassava flour to the left.
Higher operational costs contract production output at existing market prices.
4
Distinguish between price changes and non-price determinants.
A change in the price of cassava flour itself leads to an upward movement along the existing supply curve, representing an increase in quantity supplied rather than a shift in supply.
According to the law of supply, price changes affect quantity supplied along a static curve.

Key Concept

Determinants of Supply vs. Changes in Quantity Supplied
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Topics

Determinants and Changes in Supply

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