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Difficulty: HardDeterminants and Changes in Supply

A commercial farming enterprise in Nigeria allocates its available acreage between growing yam and growing cassava, as both crops compete for the same land and labor resources. If the market price of yam rises sharply while the market price of cassava remains constant, what is the direct impact on the cassava market?

  1. The supply curve of cassava shifts to the left because resources are reallocated toward yam production.Answer
  2. B
    There is a movement downward along the cassava supply curve as producers reduce the quantity of cassava supplied.
  3. C
    The supply curve of cassava shifts to the right because yam and cassava are produced jointly.
  4. D
    The supply curve of cassava remains unchanged because the price of cassava itself has not changed.

Answer

The supply curve of cassava shifts to the left because resources are reallocated toward yam production.
Yam and cassava are in competitive supply because they compete for the same productive inputs (farmland and labor). When the price of yam increases, farmers gain a higher profit margin on yam and shift resources away from cassava production. Since this change is driven by a factor other than the price of cassava itself, it constitutes a change in supply, causing the cassava supply curve to shift to the left.

Step-by-Step Solution

1
Identify the relationship between the two goods in production
Yam and cassava use the same land and labor resources, making them goods in competitive supply (substitutes in production).
Understanding whether goods are in competitive or joint supply determines how price changes in one good affect the supply of the other.
2
Analyze the profit incentive created by the price change of yam
A higher price for yam increases the profitability of yam relative to cassava.
Producers seek to maximize profit and will divert land and labor away from cassava toward yam.
3
Determine the impact on the supply of cassava
Less cassava will be supplied at every price level, causing a leftward shift of the cassava supply curve (a decrease in supply).
A change in the price of a competitive product acts as a non-price determinant, shifting the entire supply curve rather than moving along it.

Key Concept

Competitive Supply and Non-Price Determinants of Supply
Estimated Time:1m 30s
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Topics

Determinants and Changes in Supply

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