Factors Influencing Supply

FACTORS INFLUENCING SUPPLY

i.  Goals of firms: The supply of a commodity depends upon the goals of firms.

ii.    Price of the commodity: The supply o f a commodity depends upon the price of that commodity. Ceteris paribus the higher the p rice of the commodity the more pro fitable it will be to make that commod ity. O ne expects, therefore, that the higher the price, the greater will be the supply.

iii.    Prices of all other commodities: The supply of a commodity depends upon the prices o f all other commodities. Generally, an increase in the price of other co mmodities will make production of the commodity whose price does not rise relatively less attractive than it was previously. We thus expect that ceteris paribus, the supply of one commodity would fall as the price of other commodities rises.

iv.   Prices of factors of production: The supply of a commodity depends upon the prices of factors of production. A rise in the price of one factor o f productio n will cause a large increase in the costs of making those goods which use a great deal of that factor, and only a small increase in the cost of producing those co mmodities which use a small amount of the factor.

v. State of technology: The supply of a commodity depends upon the state of technology.

vi.   Time factor: Time factor can also determine elasticity of supply. Time can be broadly classified into three categories: Market period is the one where supply is fixed as no factor of production can be altered.

vii.   Short period is the time period when it is possible to adjust supply only b y changing the variable factors like raw- material, labor, etc., and Long period where supply can be changed at will because all the factors can be changed.

viii.   Agreement among the producers: S upply ma y be consciously decreased b y agreement among the producers.

ix. To raise price: Supply may also be destro yed to raise price.

x.   Taxation on output or imports: Supply ma y also be affected b y taxation on output or imports. Government ma y also restrict production of certain commodities on grounds of health (e.g., opium in India).

xi. Political disturbances or war may also create scarcity of certain goods.