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Difficulty: MediumDeterminants and Changes in Supply

A major technological improvement significantly reduces the cost of producing fertilizer for rice farmers in Nigeria. Assuming the market price of rice remains initially unchanged, how will this technological advancement affect the market supply curve for rice?

  1. The supply curve will shift outward to the right.Answer
  2. B
    There will be an upward movement along the existing supply curve.
  3. C
    The supply curve will shift inward to the left.
  4. D
    The demand curve for rice will shift to the right.

Answer

The supply curve will shift outward to the right.
A reduction in input costs due to technological advancements increases profitability for producers, encouraging them to supply more rice at all price levels. This non-price factor increases overall supply, causing the supply curve to shift outward to the right.

Step-by-Step Solution

1
Identify the economic factor described in the scenario.
Technological improvement in fertilizer production lowers the cost of agricultural inputs for rice farming.
Input costs and technology are non-price determinants of supply.
2
Analyze how reduced production costs affect producer incentives.
Lower input costs increase the profitability of producing rice at any given market price.
Producers are willing and able to supply a larger quantity of rice at every price level.
3
Distinguish between a shift of the supply curve and movement along the curve.
A change in a non-price determinant causes a shift of the supply curve (an increase in supply), represented by a rightward shift.
Movement along the curve only occurs when the price of the good itself changes.

Key Concept

Determinants and Changes in Supply vs. Quantity Supplied
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Topics

Determinants and Changes in Supply

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