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.
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