Examkin

Question

Difficulty: MediumTypes of Supply

A timber processing enterprise in Edo State uses its harvested mahogany wood to produce either construction scaffolding or executive furniture. When a government housing project drives up the market price of construction scaffolding, the enterprise reallocates most of its mahogany timber toward scaffolding production, causing a decline in the supply of executive furniture. Which type of supply is demonstrated by the relationship between construction scaffolding and executive furniture?

  1. Competitive supplyAnswer
  2. B
    Joint supply
  3. C
    Composite supply
  4. D
    Derived supply

Answer

Competitive supply
Competitive supply exists when two or more goods are produced from the same raw material or resource such that increasing the output of one commodity reduces the availability of resources for the other, resulting in a decrease in its supply. In this scenario, mahogany timber is used for either construction scaffolding or executive furniture; thus, shifting timber toward scaffolding decreases the supply of furniture.

Step-by-Step Solution

1
Analyze the production relationship in the scenario
Mahogany wood serves as a shared resource that can be allocated to make either scaffolding or furniture.
Identifying whether inputs are shared, produced together, or combined from multiple sources determines the type of supply.
2
Evaluate the effect of a price change on supply allocation
An increase in the price of scaffolding leads to higher production of scaffolding and a decrease in the supply of furniture.
Because the raw material is fixed or limited, allocating more of it to one product leaves less available for the alternative product.
3
Match the economic behavior to the corresponding supply type
This inverse supply relationship between two goods competing for the same raw material defines competitive supply.
Products in competitive supply compete for the same factors of production.

Key Concept

Competitive Supply
Estimated Time:1m 0s
Rate this question

Topics

Types of Supply

More questions from this topic