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Question

Difficulty: HardTypes of Supply

An agro-processing enterprise in Anambra State uses raw cassava tubers as the main factor input to manufacture either garri for household food consumption or industrial ethanol for bio-fuel blending. Following a policy shift that significantly boosts the market price of industrial ethanol, the enterprise reallocates its raw cassava supply and processing capacity toward ethanol production. What is the immediate impact on the supply of garri, and which type of supply relationship does this scenario demonstrate?

  1. The supply of garri decreases because garri and industrial ethanol are in competitive supply.Answer
  2. B
    The supply of garri increases because garri and industrial ethanol are in joint supply.
  3. C
    The supply of garri increases because garri and industrial ethanol form a composite supply.
  4. D
    The supply of garri remains unchanged because garri and industrial ethanol exhibit derived supply.

Answer

The supply of garri decreases because garri and industrial ethanol are in competitive supply.
Garri and industrial ethanol are in competitive supply because both products compete for the same fixed input (raw cassava tubers). An increase in the price and production of ethanol diverts cassava tubers away from garri processing, leading directly to a decrease in the supply of garri.

Step-by-Step Solution

1
Identify the resource relationship between the two commodities.
Garri and industrial ethanol both require the same fixed input of raw cassava tubers.
When two or more goods compete for the same raw material or factor of production, they are in competitive supply.
2
Analyze the impact of an increase in ethanol price.
Higher ethanol prices incentivize the enterprise to divert raw cassava toward ethanol manufacturing.
Producers reallocate scarce resources toward higher-priced, more profitable output options.
3
Determine the resulting supply response for garri.
With less raw cassava available for garri processing, the supply curve of garri shifts leftward (decreases).
An increase in the supply of one competitively supplied good leads to a decrease in the supply of the alternative good.

Key Concept

Competitive Supply
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Topics

Types of Supply

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