Factors Affecting Supply

As I do not think it is nice to leave discussion on the on the supply side, I have decided to put in an entry on some NON PRICE FACTORS affecting supply. (NB: Non-price supply factors will result in a shift of supply curve graphically)

Here it goes!

FACTORS AFFECTING SUPPLY OF A PRODUCT

(a) State of technology
Technological changes take place over time as a result of innovation and enterprise. With improved production methods, output of goods would go up, thus giving rise to increases in supply.

(b) Prices of factor inputs
The price at which producers are willing and able to sell output depends on the costs of factors, including wages, rent payments, fuel, interest rates and raw material prices. If factor prices increase, then the costs of producing the same quantity of the good also increases, so producers need to cut back on supply, even though the price of the good itself has not changed. The effect of this increase in the costs of production shifts the supply curve to the left.

d) Prices of related goods
Changes in the prices of other related goods may affect the supply of a commodity whose price does not change. If the prices of other goods increase, the production of these goods will become more profitable, and resources would tend to move towards the industries making these higher-priced commodities. The production of goods, with prices unchanged, would now be less attractive to suppliers.

e) Government policy
The imposition of indirect taxes and granting of subsidies will bring about changes in supply. A tax imposed on a good increases the cost of supplying that good, forcing suppliers to cut back on production. Subsidies have the opposite effect; they lower the costs of production and supply is increased.

f) Number of suppliers
More suppliers increase supply. On the other hand, if suppliers leave the industry, market supply will fall.
g) Weather conditionsThe output of agricultural products is determined by variations in the weather. Favourable weather conditions can increase supply while poor conditions would bring about decreases in supply