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Home Theory of supply 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 supply or decreased supply. The increases or decrease or the rise or fall in supply may take place on account of various factors.

 

They are briefly stated as below:

 

(i) Changes in Factor Price. The rise of fall in supply may take place due to changes in the cost of production of a commodity. If the prices of various factor of production used in the production of a particular commodity increase of it total cost of production. There will be reduction in the supply of that commodity at each price because the amount demanded decreases with a rise in price. Conversely, if the prices of the various factors of production fall down, it will result in lowering the cost of production and so an increase in the supply on varying prices.

     

(ii) Changes in Technique. The supply of a commodity may also be affected by progress in technique. If an improvement in technique takes place in a particular industry, it will help in reducing its cost of production. This will result in greater production and so an increase in the supply of the commodity. The supply curve will shifts to the right of the original supply curve.

 

(iii) Improvement in the Means of Transport. The supply of the commodity may also increase due to improvement in the means of communication and transport. If the means of transport are cheep and fast, then supply of the commodity can be increased at a short notice at lower price.

 

(iv) Climatic Changes in case of Agricultural Products. 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 methods 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 agriculture products.

 

(v) Political Changes. The increase or decrease in supply may also place due to political disturbances in a country. If country wages wars against another country or some kind of political disturbances take place just as we had at the time of partition, then the channels of production are disorganized. It results in the decrease of certain goods the supply curve shifts to the left of originals curve.

 

(vi) Taxation Policy. If a government levies heavy taxes on the import of particular commodities, then the supply of these commodities is reduced at each price. The supply curve shifts to the left .conversely if the taxes 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 originals supply curve.

 

(vii) 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.

Relevant Articles:

Meanings of Supply
Law of Supply
Difference Between Shift in Supply Curve and Movement
Determinants of Supply
Backward Bending Supply Curve of Labor
 

Principles and Theories of Micro Economics
Definition and Explanation of Economics
Theory of Consumer Behavior
Indifference Curve Analysis of Consumer's Equilibrium
Theory of Demand
Theory of Supply
Elasticity of Demand
Elasticity of Supply
Equilibrium of Demand and Supply
Economic Resources
Scale of Production
Laws of Returns
Production Function
Cost Analysis
Various Revenue Concepts
Price and output Determination Under Perfect Competition
Price and Output Determination Under Monopoly
Price and Output Determination Under Monopolistic/Imperfect Competition
Theory of Factor Pricing OR Theory of Distribution
Rent
Wages
Interest
Profits
Principles and Theories of Macro Economics
National Income and Its Measurement
Principles of Public Finance
Public Revenue and Taxation
National Debt and Income Determination
Fiscal Policy
Determinants of the Level of National Income and Employment
Determination of National Income
Theories of Employment
Theory of International Trade
Balance of Payments
Commercial Policy
Development and Planning Economics
Introduction to Development Economics
Features of Developing Countries
Economic Development and Economic Growth
Theories of Under Development
Theories of Economic Growth
Agriculture and Economic Development
Monetary Economics and Public Finance
History of Money

 

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