DETERMINANTS OF SUPPLY
1. The cost
of factors of production: Cost depends on the price of factors. Increase in
factor cost increases the cost of production, and reduces supply.
2. The state
of technology: Use of advanced technology increases productivity of the
organization and increases its supply.
3. External
factors: External factors like weather influence the supply. If there is a
flood, this reduces supply of various agricultural products.
4. Tax and
subsidy: Increase in government subsidies results in 43 more production and
higher supply.
5. Transport:
Better transport facilities will increase the supply.
6. Price: If
the prices are high, the sellers are willing to supply more goods to increase
their profit.
7. Price of
other goods: The price of other goods is more than ‘X’ then the supply of ‘X’
will be increased.
SUPPLY FUNCTION
Sx =
f(Px,Py, Pz,……..;Pf ,O,T)
Sx=Amount
supplied of good x
Px= Price
of good X
Py,Pz=
Prices of other goods in the market
Pf =
Prices of factors of production
O =
objective of the producer
T = State
of technology used by the producer to produce good x
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