(a) What is competitive supply? (b) With the aid of illustrations, differentiate between a supply schedule and a supply curve. (c) Explain how the supply of...

Answer Details

(a) Competitive supply. Competitive supply exists when two or more commodities are produced using the same resources, so that producing more of one means producing less of the other because they compete for the same limited factors of production. For example, a farmer using the same land can grow either maize or yam, so more maize means less yam.

(b) Supply schedule versus supply curve. A supply schedule is a table showing the various quantities of a commodity that producers are willing to supply at different prices. A supply curve is the graphical representation of that schedule, plotted with price on the vertical axis and quantity on the horizontal axis; it normally slopes upward from left to right, showing that more is supplied at higher prices.

Plotting these points and joining them gives an upward-sloping supply curve.

(c) Effects on the supply of a commodity

• (i) An improvement in technology: raises productivity and lowers cost, so supply increases (the curve shifts to the right).
• (ii) A rise in input prices: raises the cost of production, so supply decreases (the curve shifts to the left).
• (iii) A rise in the prices of other commodities: makes those other goods more profitable, so resources are switched away and the supply of this commodity falls (competitive supply).
• (iv) An increase in government subsidies: lowers the producer's effective cost, so supply increases (the curve shifts to the right).