Factors determining supply
1. Production technology
State of production technology affects the supply function. If advanced technology is used in the country, large scale production is possible. Hence supply will increase. Old technology will not increase the supply.
2. Prices of factors
When the prices of factors rise, cost of production will increase. This will result in a decrease in supply.
3. Prices of other products
Any change in the prices of other products will influence the supply. An increase in the price of other products will influence the producer to shift the production in favour of that product. Supply of the original product will be reduced.
4. Number of producers or firms
If the number of producers producing the product increases, the supply of the product will increase in the market.
5. Future price expectations
If producers expect that there will be a rise in the prices of products in future, they will not supply their products at present.
6. Taxes and subsidies
If tax is imposed by the government on the inputs of a commodity, cost of production will go up. Supply will be reduced. When subsidy is given to the producer, it will encourage them to produce and supply more. Subsidy means a part of the cost of a commodity will be borne by the government.
7. Non-economic factors
Non- economic factors like, war, political climate and natural calamities create scarcity in supply.
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