11 essential Factors influencing the supply of a commodity


Generally, the following factors influence the supply of a commodity in the market.

1. Goals of the firm:

Generally, the aim of the firm is to maximize profits. Besides, maximum sales, maximum output and maximum employment are also the goals of the firm. These goals and change in them affect the supply of the commodity.


2. Price of the substitutes:

The supply of particular goods is inversely related to the price of its substitutes.

3. The price of factors of production:

With the rise in the price of factors of production the cost of production rises. This result in decrease of supply and vice versa.


4. Change in technology:

A change in technique of production may lead to a change in supply if the technique of production improves, cost of production will fall. Even at the same prices, producers will like to supply more and vice versa.

5. The price of the commodity:

The supply of a commodity very much depends on its price. There is direct and positive relationship between the price of the commodity and its supply.


6. Expected change in price:

In case producers expect an increase in the price, they will withdraw goods from the market. Consequently, supply will decrease. If price is expected to fall in future, supply will naturally increase.

7. Taxation policy:

The production of the commodity is discouraged if heavy tax on its production is imposed. On the contrary, tax concessions encourage producers to increase supply.


8. Number of producers:

If the number of producers producing a commodity increases, its supply will increase. With the exit of producers, the supply would decrease.

9. Internal peace and stability:

Existence of internal peace and stability will increase the production and supply of a good. With political disturbances, labor unrest and wars production and supply of a good will be hampered.


10. Natural factors:

Natural calamities like flood, drought and cyclone reduce the supply of a commodity. If natural disasters are absent, production and supply of a good will increase.

11. Means of transport:

Goods transport and communication facilitates free and quick mobility of factors of production to the producing centers and the final products to the market. Presence of good means of transport and communication thus increases the supply of a good. The supply curve will shift to left.

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