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 ($) | Quantity Supplied (gallons) |
| 6 | 200 |
| 12 | 300 |
| 18 | 400 |
| 20 | 500 |
| 24 | 600 |
(a) If the price of palm oil falls from $20.00 to $18.00, calculate the price elasticity of supply. (4 arks)
(b) Interpret your answer in question 2(a) above. (2 marks)
(c) Study the extract below and answer the following questions. The price of palm oil remains at $6.00 per gallon and an increase in the price of a related product causes an increase in the supply of palm oil:
(i) Give a graphical presentation to illustrate this change. (6 marks)
(ii) Indicate the type of supply for the two products. (2 marks)
(d) State reasons that can cause a change in supply. (6 marks)
Explanation
(a)
Price elasticity of suppy = \(\frac{\Delta Q}{\Delta P}\) x \(\frac{P}{Q}\)
P = $20.00
Q = 500 gallons
\Delta Q = 500 - 400 = 100 gallons
\Delta P = $20.00 - $18.00 = $2.00
Es = \(\frac{100}{2}\) x \(\frac{20}{500}\)
Es = 2
(b) The supply is elastic. This is because the coefficient of price elasticity of supply is greater than one (Es > 1).
(c)(i)
(ii) Joint supply i.e. these two products are jointly supplied.
(d)(i) Change in the price of related products.
(ii) Cost of production.
(iii) Change in technology.
(iv) Government policy e.g. tax or subsidy
(v) Expectation of producers.
(vi) Number of producers.
(viii) Natural disaster