Factors determining supply
MEANING OF SUPPLY:
Supply refers to the quantity of a commodity offered for a sale at different alternative price at a point of time or during a period of time.
FACTORS DETERMINING SUPPLY:
1) Price:
If price rises supply also rises & if price falls supply also falls. It means there is a direct relationship between price and supply.
2)Cost of production:
When producer produces more and more & if average cost of production keeps on falling then the producer will produce more & the supply will be also more and vice-versa.
3) Period of production:
To produce a commodity if it takes long period of time then supply of the commodity in short period will be less.
4) Scale of production/ state of technology:
If the producer produce various goods and services on a large scale by introducing high technology then the supply of the commodities will be more & vice-versa.
5) Self- consumption:
If the major proportion of production is kept for self consumption then supply of the commodity in the market will be less. E.g.: if farmer keeps 80 bags of rice out of 100 bags for self consumption then, he will supply only 20 bags to the market.
6)Development of transport and communication:
In an economy if there is well developed transport and communication system then supply will be more in that economy & vice-versa.
7) Development of banking and finance:
If there is will developed banking and financial system then supply will be more in the economy & vice-versa.
8) Natural factors:
Natural factors such as favorable monsoon climatic condition etc. Increase in the production of agricultural goods. On the other hand the natural calamities like flood, fire, earthquake, drought, etc. Will reduce the supply of various goods.
9) Need for cash:
If the seller is urgently in need of cash then , he will reduce the price and increase the supply. Here,when price falls supply rises & that is why this is an exception to the law.
10) Expectation regarding future change in price:
When the price of the commodity rises slightly & if the seller expects that the price will further rise in future then he will supply less quantity than before & vice-versa. Here, when the price rises supply falls and when price falls supply rises. This is contrary to the law of supply. So,this is an exception to the law.
Supply refers to the quantity of a commodity offered for a sale at different alternative price at a point of time or during a period of time.
FACTORS DETERMINING SUPPLY:
1) Price:
If price rises supply also rises & if price falls supply also falls. It means there is a direct relationship between price and supply.
2)Cost of production:
When producer produces more and more & if average cost of production keeps on falling then the producer will produce more & the supply will be also more and vice-versa.
3) Period of production:
To produce a commodity if it takes long period of time then supply of the commodity in short period will be less.
4) Scale of production/ state of technology:
If the producer produce various goods and services on a large scale by introducing high technology then the supply of the commodities will be more & vice-versa.
5) Self- consumption:
If the major proportion of production is kept for self consumption then supply of the commodity in the market will be less. E.g.: if farmer keeps 80 bags of rice out of 100 bags for self consumption then, he will supply only 20 bags to the market.
6)Development of transport and communication:
In an economy if there is well developed transport and communication system then supply will be more in that economy & vice-versa.
7) Development of banking and finance:
If there is will developed banking and financial system then supply will be more in the economy & vice-versa.
8) Natural factors:
Natural factors such as favorable monsoon climatic condition etc. Increase in the production of agricultural goods. On the other hand the natural calamities like flood, fire, earthquake, drought, etc. Will reduce the supply of various goods.
9) Need for cash:
If the seller is urgently in need of cash then , he will reduce the price and increase the supply. Here,when price falls supply rises & that is why this is an exception to the law.
10) Expectation regarding future change in price:
When the price of the commodity rises slightly & if the seller expects that the price will further rise in future then he will supply less quantity than before & vice-versa. Here, when the price rises supply falls and when price falls supply rises. This is contrary to the law of supply. So,this is an exception to the law.
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