Factors determining supply

Economics

1. Price of the commodity:
Higher the price larger the supply.Price is the incentive for the
producers and sellers to supply more.
2. Price of other commodities:
The supply of a commodity
depends not only upon its price but also price of other commodities.For instance if the price of commercial
crops like cotton rise, this may result in reduction in cultivation of food crops like paddy and so its supply.
3. Price of factors:
When the input prices go up, this results in rise in cost and so supply will be affected.
4. Price expectations:
The expectation over future prices determines present supply. If a rise in price is anticipated in future, sellers tend to retain their produce for
future sale and so supply in present
market is reduced.
5. Technology:
With advancement in technology,
production level improves, average cost declines and as a result supply level increases.
6. Natural factors:
In agriculture, natural factors like monsoon, climate etc. play a vital role ole in determining production
level.
7. Discovery of new raw materials:
The discovery of new raw materials which are cheaper and of high quality tends to increase supply of the product.
8. Taxes and subsidies:
Subsidies for inputs, credit, power etc. encourage the producers to produce more. Withdrawal of such
incentives will hamper production.
Taxes both direct and indirect kill the ability and willingness to produce
more. 9. Objective of the firm:
When the goal of the firm is sales maximisation or improving market share, the supply of the product is likely to be higher.

Leave a Reply