Supply is the scarce goods. It is the amount of a commodity that sellers are able and willing to offer for sale at different prices per unit of time. In other words of Meyer “Supply is a schedule of the amount of a good that would be offered for sale at all possible prices at any period of time; e.g. a day, a week and so on.”
Determinants of Supply
When the supply of a commodity rises or falls due to non-price determinants, the supply is said to have increased or decreased. The increase or decrease, or the rise or the fall in supply may take place on account of various factors. They are stated briefly as under.
1. Change in Factor Prices: The rise or fall in supply may take place due to change in the cost of production of a commodity. If prices of various factors of production used in the production of a particular commodity increase, it will result in the increase of its total cost of production. There will be a reduction in the supply of that commodity at each price because the amount demanded decreases with a rise in price. Conversely, if prices of the various factors of production fall down, it will result in lowering the cost of production and so an increase in supply on varying prices.
2. Changes in Technique: The supply of a commodity may also be affected by progress in technique. If an improvement in technique takes place in a particular industry. It will help in reducing its cost of production. This will result in greater and so an increase in the supply of the commodity. The supply curve will shift to the right of original supply curve.
3. Improvement in the Means of Transport: The supply of a commodity may also increase due to improvement in the means of communication and transport. If the means of transport are cheap and fast, then supply of the commodity can be increased at a short notice at lower prices.
4. Climatic changes in case of Agricultural Products: The supply of agricultural product is directly affected by the weather conditions and the use of better methods of production. If rain is timely, plentiful, well-distributed and improved methods of cultivation are employed, then other things remaining the same, there will be bumper crops. It would then be possible to increase the supply of the agriculture products.
5. Political Changes: The increase or decrease in supply may also take place due to political disturbances in a country. If a country wages war against another country, or some kind of political disturbances takes place just as we had at the time of Partition, then the channels of production are disorganised. It results in the decrease of certain goods. The supply curve shifts to the left of original supply curve.
6. Taxation Policy: If a government levies heavy taxes on the import of a particular commodity or commodities then the supply of these commodities is reduced at each price. The supply curve shifts to the left. Conversely, if the taxes on output in a country are low and government encourages, the import of foreign commodities, then the supply can be increased easily. The supply curve shifts to the right of original supply curve.
7. Goals of Firms: If the firms expect higher profits in the future they will take the risk and produce goods on the large scale resulting in larger supply of the commodity. The supply curve shifts to the right.
.jpg)