The table below presents the price and quantity supplied by a palm oil producer. Use the information in the table to answer the following questions. Price (...

(a) Price elasticity of supply

When price falls from $20.00 to $18.00, quantity supplied falls from 500 gallons to 400 gallons.

\[\Delta Q_s=500-400=100\text{ gallons}\]

\[\Delta P=20-18=2\]

Using the initial price and quantity, \(P=20\) and \(Q=500\):

\[E_s=\frac{\Delta Q_s}{\Delta P}\times\frac{P}{Q}\]

\[E_s=\frac{100}{2}\times\frac{20}{500}=50\times0.04=2\]

Price elasticity of supply = 2.

(b) Supply is elastic because \(E_s=2\), which is greater than 1. Thus, the percentage change in quantity supplied is greater than the percentage change in price.

(c)(i) Graphical presentation

The increase in the price of the related product shifts the supply curve of palm oil rightward from \(S_1\) to \(S_2\). At the unchanged price of $6.00 per gallon, quantity supplied increases from \(Q_1\) to \(Q_2\).

(c)(ii) The two products are in joint supply. An increase in the price of one jointly produced product encourages producers to increase output of both products.

(d) Reasons for a change in supply

1. Prices of related products: a rise in the price of a jointly supplied product may increase the supply of palm oil.
2. Cost of production: higher costs of labour, transport, machinery or raw materials reduce supply, while lower costs increase supply.
3. Technology: improved production methods increase supply by making production more efficient.
4. Government policy: taxes reduce supply, whereas subsidies may increase supply.
5. Producers' expectations: expected future price increases may cause producers to withhold current supply; expected price falls may increase current supply.
6. Number of producers: entry of more producers increases market supply, while exit of producers reduces it.