Write any five determinants of supply. |
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| Ans : The main determinants of supply are explained below:
i) Price of its own commodity:-When there is increase in price of its own commodity, there is increase in quantity supply. On the other hand, when there is decrease in price of it’s own commodity there is decrease in quantity supply. This shows that there is positive relationship between price and quantity supply.
ii) Change in price of factors of production:- when there is increase in price of factors of production, it increases cost of production. This leads to decrease in the quantity supply and vice versa.
iii) Improvement in technology:- When there is improvement in technology, it reduces the per unit cost and increases production. Therefore, quantity supply increases with the improvement in technology.
iv) Change in government policy (Tax and subsidy):- When there is increase in tax rate, it increases cost of production due to which quantity supply decreases.
When the amount of subsidy provided by government increase, it decreases cost of production due to which quantity supply increases.
v) Number of firms:- When there is increase in number of firms/producer/sellers, it increases the production capacity due to which quantity supply increases.
vi) Expectation of supplier about price:- When there is expectation that there will be increase in price in near future, the supplier will decrease the supply and vice versa.
vii) Goal of the firms:- If the objective of the firm is profit maximization, supplier will supply less quantity at high price. If the objective of the firm is sales maximization, supplier will supply more quantity at less price.
viii) Price of other goods:- There is negative relationship between price of other goods. For example, A rise in price of rice will decrease the supply of wheat. This is because when there is increase in price of rice the producer will be encourage to produce more of rice and less wheat.
ix) Development of infrastructure:- When the infrastructure of a country is more develop, the supplier can supply more quantity of goods and services in the market. Therefore, with the development of infrastructure like transportation, electricity, communication etc. quantities supply increases.
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