What are the various factors that determine supply?

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A supply schedule and supply curve show that the supply of a product is function of its price. However, the supply depends not only on the price of a product but on several factors. Will the change in other factors the entire supply curve shifts upward and downward. The factors responsible for this upward and downward shift of a demand curve are detailed below.

(1) Change in the cost of production:

Supply depends on the cost of production. A rise in the cost of production will shift the supply curve upward showing the decrees in the supply. On the other hand a fall in the cost leads to an increase in the supply. In such a case the supply curve shifts tumid.

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(2) Production technology:

A change in technology leads to a fall in the cost of production. If the technologies followed by the firms are improved, the cost of production will decline so that the firms would supply more than before. Thus the improvement in technology leads to an increase in the supply of a commodity.

(3) New source of raw materials:

Discovery and exploitation of new sources of raw materials enable the producer to supply more at the same price. As against this, the supply of the commodity decreases with the constant depletion of sources of basic raw materials.

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(4) Composite relationship:

There are certain commodities the productions of which bring about the production of another commodity as in the case of paddy and straw. This happens in case of joint goods. Any increase in the product of paddy will result in the increase in the production of straw.

(5) Natural factors:

The supply of agricultural commodities depends on the natural factors. The supplies of agricultural products rise with the handsome rainfall and good weather. Supply of adequate inputs, improved seeds and improvement in irrigation and better fertilizers enable an agriculturist to increase the supply. On the other hand, inadequate irrigation, failure of rains, floods, and pestilence will decrease the supply.

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(6) Objective of the firm:

The objective of a firm also determines the supply of a product. If the objective of a firm is maximization of sale and revenue rather than profit, the supply of the product produced by it would be larger.

(7) Prices of other products:

Any change in the prices of other products would influence the supply of a product by substituting one product for another. If the market price of coffee rises, it causes a reduction of the production and supply of tea as the producers withdraw some resources from the production of tea and devote them for the production of wheat.

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(8) Means of transport:

The cost of transport also affects the supply. Improvement in means of transport results in the extension of market for the commodity. This boosts up supply of the commodity under consideration.

(9) Expectations of future price:

The supply of a commodity in the market at any time is determined by sellers’ expectations of future prices. During inflation tellers expect the prices to rise in future. They would hoard the essential goods thereby creating artificial reduction in the supply of the goods in question.

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(10) Taxes and Subsidies:

Taxes and subsidies also influence the supply of a product. Imposition of sales tax on a product will put the producer in a Mate whether to supply the same quantity at higher price or less quantity at the same price. The opposite happens in case of subsidies. Incorporation of subsidies helps the producers to increase supply.

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