Factors determining supply

Factors determining supply:

1. Production technology:

The state of production technology influences the supply function. When advanced technology is employed in the country, large scale production is achievable. Therefore supply will rise. Old technology will not raise the supply.

2. Prices of factors:

Whenever the prices of factors increase, cost of production will also raise. This will outcome in diminish in supply.

3. Prices of other products:

Any modification in the prices of other products will persuade the supply. An augment in the price of other products will persuade the producer to shift the production in favor of that product. The supply of original product will be decreased.

4. Number of producers or firms:

When the number of producers generating the product rises, the supply of the product will raise in the market.

5. Future price expectations:

When producers expect that there will be an increase in the prices of products in future, they will not deliver their products at current.

6. Taxes and subsidies:

When tax is imposed by the government on inputs of a commodity, the cost of production will rise up. Supply will be decreased. Whenever subsidy is provided to the producer, it will encourage them to create and supply more. Subsidy means a portion of the cost of a commodity will be bear by the government.

7. Non-economic factors:

Non-economic factors such as, war, political climate & natural calamities generate scarcity in supply.

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