What Is Supply ?
Supply refers to the quantity of goods or services that firms are able to make available or offer to customers. It is influenced by several factors (also called determinants of supply) such as time, production cost, technology, government policy etc.
Understanding The Determinants Of Supply
The most common factors or determinants of supply can be described as follows:
1. Time Factor
Time factor is one of the determinants of supply. Because of less variability of production factors, supply is less elastic in the short-run. Supply will be more elastic in the long-run because of high variability of factors of production.
2. Cost Of Production
Production cost affects the supply of goods. If the cost of production increases then businesses supply less products . On the other hand, they supply more items in the market if production decreases.
3. Nature Of The Product
Perishable products have less elastic supply than durable products.
Improved technology reduces the cost of production which leads to increase in supply. Therefore, technological advancement also impacts supply chain.
5. Number Of Suppliers
More suppliers in the market helps to increase supply of goods and vice versa.
6. Price Of The Product
Price of the product is the most important determinant of supply. If price increases then supply also increases and vice versa.
7. Price Of Substitutes
Price of substitutes or complementary products also affect supply of the main product. Rise in price of related good leads to increase in demand.
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8. Expectations Of Suppliers
Suppliers may reduce the quantity of supply if they expect a rise in price and increase supply quantity if they expect fall in price in the near future.
9. Government Policies
Government policies like tax policy and subsidy also influence the supply of commodity in the market.
10. Natural Factors /External Shocks
Natural calamities such as earthquake, tsunami, landslide etc. also impact supply that reduces the availability of goods in the market. So, it is also the determining factor of supply.
