Determinant of Supply 1. Price of related goods The supply of a product can be influenced by the price of related goods: Substitute goods Supply of a product will decrease if there is an increase in the price of a substitute product, for example Maxis and Celcom.
When the price of Maxis increase, the quantity supplied will increase law of supply and the quantity supply of Celcom will be decrease. So, if price of substitute goods increase, supply curve for current goods will shift to the left. Complementary goods An increase in the price of a product will increase the supply of a complementary product. For example, Petrol and Car. When the price of Car increases, the quantity of car supplied will increase and the supply on petrol will also increase since both are complementary goods.
So, if the price of complementary goods increases, supply curve will shift to the right. Cost of production When the cost of production increase price of production factor increase , quantity supplied will be decrease and vice versa. For example, an increase in wages of labor and price of capital equipment in production process will increase the cost of production and thus reduce the supply curve.
So, cost of production increase, will shift the supply curve to the left. Expected future price If the seller was expecting the price will increase in following month, the current quantities supplied will be decrease and vice versa. For example, when the government announces an increase in the price of sugar, the current supply will decrease because the supplier wants to gain a higher profit with a higher new price.
Technological advance Changes in technology are the most important influences on supply. Existence of the new technology will reduce cost of production. So, the seller can increase their production. For example, when new technology was introduced in paddy harvesting, the supply of rice will be increased. So, the technology advance will shift the supply curve to the right. Number of sellers The large number of firms supplying a product, the large quantity supplied of the product and vice versa.
For example, if there is an increase in the number of cafeterias in a KPMBP, the supply of foods and drink will increase. So, if number of seller increase, supply curve will shift to the right and vice versa. Why don't you allow people to copy this into a MW document? Information should be free flowing. I'm still going to copy this, just it's going to take longer, so in the end you're just inhibiting the learning process.
Let's face the facts, only students will be using this info. If resource prices increase faster than supply prices, then producers will have less incentive to produce more. Likewise, when resource prices fall, then profits increase for the same price level, so sellers will produce more. A similar analysis can be applied to taxes and subsidies , since taxes decrease and subsidies increase the profits of suppliers.
Improvements in technology can reduce the need for factors of production in supplying a product. For instance, robotics have greatly reduced the need for labor.
More fuel-efficient aircraft allows airlines to sell seats for less, thereby increasing demand. Technology can also reduce distribution or marketing costs.
For instance, the cost of distributing electronic books is virtually zero. Prices of other goods will also affect the production of any one good. If a business can produce more than one type of product with its equipment and labor, then it will tend to produce more of those things for which it receives a higher profit and less of the other things. For instance, a farmer can produce a large number of products on a farm. Hence, the farmer will allocate increased acreage for products yielding the highest profits.
Since the farmer has only so many acres of land, devoting more land to grow one type of food will leave less land to grow other types. Such a substitution production will reduce the supply of the other items that the farmer can provide.
And what is true for one farmer is probably true for all of them. Hence the market supply of more profitable crops will be greater until the increased supply reduces the market price enough to eliminate the excessive profit. The number of sellers will have an effect on the market supply, since the market supply is simply the sum of the supply of each individual seller — more sellers entering the market increases supplies while departing sellers decreases supply.
Expected prices can also change the present supply, because if suppliers believe that prices will decline in the near future, they may try to sell all that they have presently. Likewise, if prices are expected to rise in the future, then suppliers may hold onto their supply until prices rise.
After all, this is why people hold stock in companies, because they expect stock prices to rise. When they believe that the stock has reached the maximum price, then the expectation is that the prices thenceforth will decline, so they sell their stock to lock in their profit.
Economic supply—how much of an item a firm or market of firms is willing to produce and sell—is determined by what production quantity maximizes a firm's profits. The profit-maximizing quantity, in turn, depends on a number of different factors.
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.
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. 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.
Start studying Determinants of Supply. Learn vocabulary, terms, and more with flashcards, games, and other study tools. An illustrated tutorial on the economics of supply and how supply determinants, such as prices, affects the quantity supplied.