Supply and it's Determinants

 

Supply

It means the quantities of a commodity that it’s producer or seller has willingness and ability to offer for sale at a given price and period of time.

Determinants of Supply

a.      Price of the Commodity

The price of the commodity is the most important determinant of supply. There is direct relationship between price of the commodity and its quantity supplied, other thing remaining same. It means that the higher price, producers or sellers offer more quantity or commodity for sale and at lower price, producers or sellers offer less quantity of the commodity for sale.

b.     The price of the Other Goods

The supply of a commodity is inversely related with price of other commodities. For eg: A rise in the price of rice will fall the supply of wheat. This is due to the fact that rise in the price of rice will encourage producers to produce more rice.

c.      Price of the factors of Production

Supply of commodity is also affected by the price of the factors of production. With this rise in the price of the factors of production, the cost of production also rises, which results decrease supply and vice-versa.

d.     State of Technology

Technological innovations and inventions tend to make it possible to produce better quality and/or quantity of goods using the same resources. Therefore, the state of technology can increase or decrease the supply of certain goods.

e.      Government Policy

Commodity taxes like excise duty, import duties, GST, etc. have a huge impact on the cost of production. These taxes can raise overall costs. Hence, the supply of goods that are impacted by these taxes increases only when the price increases. On the other hand, subsidies reduce the cost of production and usually lead to an increase in supply.

f.Other Factors

There are many other factors affecting the supply of goods or services like the government’s industrial and foreign policies, the goals of the firm, infrastructural facilities, market structure, natural factors etc.