Definition: Determinants of supply are factors that may cause changes in or affect the supply of a product in the market place. These factors include:
1. Production technology: an improvement of production technology increases the output. This lowers the average and marginal costs, since, with the same production factors, more output is produced.
2. Prices of production factors: a rise in the price of one or more production factors leads to an increase in the production costs and vice versa.
3. Prices of other products: the supply of a product may be influenced by the prices of other products, especially if the products are complementary.
4. Number of production units: as the number of production units increases, the total supply of a product increases and vice versa.
5. Government policies: when taxes increase, the quantity supplied decreases because the cost of production increases. When subsidies increase, the quantity supplied increases because the cost of production decreases.
6. Expectations of producers: if producers expect a rise in the price of a product, they are likely to lower the quantity supplied and wait until the price goes up to sell the product at a higher price.
7. Random, natural, and other factors: the supply of agricultural products is influenced by natural phenomena and the weather conditions. Other factors affecting supply can be extended strikes, floods, political instability etc.
