Determinations of Supply

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Offline Md. Alamgir Hossan

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Determinations of Supply
« on: April 03, 2017, 05:08:29 PM »
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.