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Difficulty: HardTypes of Supply

A commercial livestock farm in Sokoto State raises sheep primarily to supply mutton to urban markets. In the same rearing process, raw sheep hides are produced as a byproduct. If a surge in consumer demand causes the price and production volume of mutton to increase significantly, what immediate effect will this have on the market for raw sheep hides?

  1. The supply curve of raw hides shifts to the right, leading to a decrease in its equilibrium price.Answer
  2. B
    The supply curve of raw hides shifts to the left, leading to an increase in its equilibrium price.
  3. C
    There is an upward movement along the existing supply curve of raw hides, raising its equilibrium price.
  4. D
    The supply of raw hides remains unchanged because mutton and hides are in competitive demand.

Answer

The supply curve of raw hides shifts to the right, leading to a decrease in its equilibrium price.
Mutton and raw hides are in joint (complementary) supply because both are yielded from the same production process (raising and slaughtering sheep). When an increase in mutton demand drives producers to slaughter more sheep, the total market supply of raw hides increases. This represents a rightward shift of the supply curve for raw hides, which, assuming demand for hides is constant, causes its equilibrium price to decrease.

Step-by-Step Solution

1
Identify the economic supply relationship between mutton and raw sheep hides
Mutton and sheep hides are produced jointly from the single process of sheep rearing/slaughtering, making them joint (complementary) supplies.
When two or more goods are derived from a single production source such that increasing the production of one inherently increases the yield of the other, they exhibit joint supply.
2
Determine how the increase in mutton production affects raw hide availability
A higher output of mutton leads directly to an increase in the quantity of raw hides brought to market at any given price level.
Slaughtering more sheep to meet mutton demand generates more raw hides simultaneously.
3
Analyze the impact on the supply curve and market equilibrium price of raw hides
The overall supply curve of raw hides shifts to the right, creating excess supply that depresses the market equilibrium price of hides.
According to supply and demand theory, an increase in supply while market demand remains constant results in a lower equilibrium price and higher equilibrium quantity.

Key Concept

Joint (Complementary) Supply Dynamics
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Topics

Types of Supply

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