The supply situation for rice in country X over a period as shown in the table below. Use the information in the table to answer the questions that follow. ...
Question 1 Report
The supply situation for rice in country X over a period as shown in the table below. Use the information in the table to answer the questions that follow.
| Period | Price ($) | Quantity supplied (bags) |
| December 2004 | 30 | 100 |
| January 2007 | 40 | 150 |
| April 2009 | 50 | 160 |
(a) Calculate the co-efficient of price elasticity of supply for rice between December 2004 and January 2007.
(b) Is the supply of rice elastic? Give a reason for your answer.
(c) State any three reasons which may cause an increase in the supply of rice,
Answer Details
(a) Price elasticity of supply between December 2004 and January 2007
The coefficient is \( E_s = \dfrac{\%\,\Delta Q_s}{\%\,\Delta P} \). Between the two periods price rose from \$30 to \$40 and quantity supplied rose from 100 to 150 bags.
\[ \%\,\Delta Q_s = \frac{150-100}{100}\times 100 = 50\% \]
\[ \%\,\Delta P = \frac{40-30}{30}\times 100 = 33.33\% \]
\[ E_s = \frac{50}{33.33} = 1.5 \]
(b) Yes, the supply of rice is elastic, because \( E_s = 1.5 > 1 \): the percentage change in quantity supplied (50%) is greater than the percentage change in price (33.33%), so quantity supplied is highly responsive to price.
(c) Three reasons that may cause an increase in the supply of rice:
- Improvement in technology (better machinery, high-yield seeds) raising output.
- Favourable weather or good climatic conditions during the growing season.
- A fall in the cost of production or inputs, or a government subsidy to farmers.
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