Home / Economics / Determinants of Supply

Determinants of Supply

When the supply of the commodity rises or falls due to non-price determinants, the supply is said to have increased or decreased supply. The increases or decrease or rise or fall in supply may take place on account of various factors. They briefly stated as below:

  1. Change in Factor Price. The rise or fall in supply may take place due to changes in the cost of production of a commodity. If the prices of various factors of production used of a particular commodity increase then total cost of production will also increase. There will be reduction in the supply of that commodity because the quantity demanded decreases with a rise in price. Conversely, if the price of the various factors of production fall down, then in lowering the cost of production and an increase in the supply
  2.  Change in Technique. The supply of a commodity may also be affected by progress in technique. If an improve technology is used then it reduce its cost of production. As a result, greater production and an increase in the supply of the commodity will occur. The supply curve will shifts to the right of the original supply curve.
  3. Improvement in the Transportation Systems. The supply of the commodity may also increase due to improvement in the means of communication. If the means of transport are cheap and fast, then supply of the commodity can be increased at a short notice at lower price.
  4. 4. Climate Change in case of Agricultural Product. The supply of agricultural products is directly affected by the weather conditions and the use of the better methods of production. If rain is timely plentiful well-distributed; and improve method of cultivation are employed then other things remaining the same, there will be bumper crops. It would then be possible to increase the supply of the agricultural products.
  5. 5. Political Changes. The increase or decrease in supply may also take place due to political disturbances in a country. If country engages in wars against another country or some kind of political disturbances take place then supply will be decrease.
  6. Taxation Policy. If a government levices heavy taxes on the import of particular commodities, then the supply of these commodities is reduce at each price. The supply curve shifts to the left, conversely if the taxes on on output in the country are low and government encourages the import of foreign commodities, Then the supply can be increased easily. The supply curve shifts to the right of original supply curve.
  7. Goals of firms.  If the firms expect higher profits in the future, they will take the risk and produce goods on large scale resulting in larger supply of the commodities. The supply curve shifts to the right.

Page no 81