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Financial Accounting

Non-price determinants of supply

❶Price and output Determination Under Perfect Competition.

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For example, when more firms enter an industry, the number of sellers increases thus increasing the supply. Increase in resource prices increases the production costs thus shrinking profits and vice versa. Since profit is a major incentive for producers to supply goods and services, increase in profits increases the supply and decrease in profits reduces the supply. In other words supply is indirectly proportional to resource prices.

Increase in resource prices reduces the supply and the supply curve is shifted leftwards whereas decrease in resource prices increases the supply and the supply curve is shifted rightwards. Taxes reduces profits, therefore increase in taxes reduce supply whereas decrease in taxes increase supply.

Subsidies reduce the burden of production costs on suppliers, thus increasing the profits. Therefore increase in subsidies increase supply and decrease in subsidies decrease supply. Improvement in technology enables more efficient production of goods and services. Thus reducing the production costs and increasing the profits. As a result supply is increased and supply curve is shifted rightwards. Since technology in general rarely deteriorates, therefore it is needless to say that deterioration of technology reduces supply.

Change in expectations of suppliers about future price of a product or service may affect their current supply. However, unlike other determinants of supply, the effect of suppliers' expectations on supply is difficult to generalize. For example when farmers suspect the future price of a crop to increase, they will withhold their agricultural produce to benefit from higher price thus reducing the supply.

Principles and Theories of Macro Economics. National Income and Its Measurement. Principles of Public Finance. Public Revenue and Taxation. National Debt and Income Determination. Determinants of the Level of National Income and Employment. Determination of National Income. Theory of International Trade. Development and Planning Economics.

Introduction to Development Economics. Features of Developing Countries. Economic Development and Economic Growth.

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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 duties, subsidies and any other factor relating to the end supply of a good or service.

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A decrease in petrol price will lead to more frequent use of cars that will increase the demand for petrol and engine oil, its complements. [ See Non Price Determinants Of Supply] Related Posts.

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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. Price. The law of demand states that when prices rise, the quantity of demand falls. That also means that when prices drop, demand will grow. People base their purchasing decisions on price if all other things are equal. The exact quantity bought for each price level is described in the demand schedule.

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Non-Price Determinants of Supply. Changes in Production Technology. Changes in the Cost of Factor Inputs (Resources). Changes in the Number of Sellers in the Market. Changes in the Expectations of Future Prices. Changes in the Prices of Related Substitute Goods, and By-products. Sep 27,  · The non-price determinants of supply are taxes & subsidies, technology, number of seller, price of other products, expectations and resources. Taxes and subsidies relate to the cost of factors of production and if the taxes were to.