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Determinants of Supply

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If market price of wheat rises, the jute farmers would be interested in wheat production so that in the next season they can increase the supply of wheat. On the other hand, in the case of a joint product, a rise in the market price of mutton will increase the quantity of leather supplied. Thirdly, price of inputs is also an important determinant of supply. If the price of an input say, wage bill rises, the cost of production will surely increase.

Consequently, profit will tend to decline. Seeing an unprofitable situation, a firm will reduce the supply of a commodity and will try to switchover to the production of another commodity which is still not unprofitable. Fourthly, in the short run, usually the supply of a commodity mainly perishable good is unresponsive to price change. But, in the long run, the supply of a commodity tends to be more flexible or fluctuating in response to the changing situation. For non-reproducible goods, the supply becomes highly inelastic.

One can now suggest that the supply of a commodity also depends on its nature. For instance, the supply of non-perishable goods responds more than the perishable goods when their prices change.

Fifthly, the state of art or the technology has an important bearing on the supply of a commodity. As newer and modern technologies are employed in a concern, production and productivity rise and average costs of production tend to decline.

This result in a change in quantity supplied. Firms can have different goals. Usually, profit-maximization is the most fundamental objective of a firm. Modern business firms aim at maximization of sales revenue rather than profit. Supply of a commodity under these two broad objectives is likely to be different. Thus, the supply of a commodity depends on the goals or objectives of a firm.

The reduction in the production cost through technology will increase profits. Therefore, the supply increases and the supply curve will shift rightwards. Technology rarely deteriorates and it ensures the business remains efficient therefore a constant supply of the goods and services. When the number of sellers is high in a certain market, the quantity of product or service supplied to that market will be high and vice versa. Therefore, an increase in the number of sellers in a market will decrease the supply and the supply curve shifts leftwards.

An example is a situation where more companies enter into an industry, this will increase the number of sellers, and therefore supply will increase as well. Changes in the expectations of the suppliers about the future price of a service or a product may affect the current supply. However, unlike the other determinants of supply, the expectations of the supply can be quite difficult to generalize. For example, when farmers anticipate that the price of the crop will increase.

This will cause them to withhold the produce to benefit from a higher price. This, in turn, reduces the supply and in the context of manufacturers when there is an expected increase in price then they will employ more resources to increase the output. An increase in the prices of the inputs will increase production costs. This will, in turn, shrink the profits.

Since profit is a major incentive the producers supplying goods and services to a certain market will increase, the production of service or product when there is low production costs and vice versa. An increase in the price of the inputs will reduce the supply of the commodity, the supply curve will shift leftwards, and a decrease in the price of inputs the price increases and the supply curve will shift rightwards.

Companies which manufacture related products, such as detergents, will shift their production to a particular product if that product is manufactured in large quantities.

It increases the price, and there will be a reduction in supply. An example is a firm that produces soccer balls and basketballs, when the price of soccer balls increases the firm will produce more soccer balls and less of basket balls, this means that the supply of basketballs will reduce.


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Definition of determinants of supply: Elements besides price which determine the available amount of a product or service. Examples of determinants of supply in a business consist of the price of raw material, production costs, taxes and.

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Definition: Determinants of supply are factors that may cause changes in or affect the supply of a product in the market place. What Does Determinants of Supply Mean? These factors include: 1. Production technology: an improvement of production technology increases the output.

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Determinants of supply (also known as factors affecting supply) are the factors which influence the quantity of a product or service supplied. The price of a product is a major factor affecting the willingness and ability to supply. Determinants of supply are the factors that affect the supply of a product or service and that cause a shift in the supply curve. However, these factors are held constant (according to the law of supply) to alleviate the effect of the law of supply especially with relation with quantity supplied and the supply price.

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What Are the Determinants of Supply? This definition of technology encompasses what people usually think of when they hear the term, but it also includes other factors that impact the production process that are typically not thought of as under the heading of technology. For example, unusually good weather that increases an orange grower's. Determinants of Supply. Meaning of Supply: Supply is the quantity of a good which is offered for sale at a given price at a particular time. “The amount of a product that firms are able and willing to offer for sale [ ].