The supply situation for rice in country X over a period as shown in the...
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,
Explanation
(a) Es = \(\frac{% change in quantity supplied}{% change in price}\)
% change in quantity = \(\frac{\Delta q}{q}\) x 100
= \(\frac{150 -100}{100}\) x 100
= \(\frac{50}{100}\) x 100
= 50%
% change in price = \(\frac{\Delta P}{P}\) x 100
= \(\frac{40-30}{30}\) x 100
= \(\frac{10}{30}\) x 100
= 33.3%
Es = \(\frac{50%}{33.3%}\) = 1.5
(b) The supply of rice is elastic. The coefficient of price elasticity of supply is greater than 1
(c) Factors that can cause an increase in the supplyof rice:
(i) Improvement in technology
(ii) Favourable weather condition
(iii) Increase in the number of producers or importers of rice.
(iv) Reduction in taxation which stimulates production or Importation of rice.
(v) Fall in the prices of of other commodities
(vi) Increase in subsidies
(vii) Reduction in the price of inputs