DETERMINANTS OF SUPPLY

DETERMINANTS OF SUPPLY

Although price is an important consideration in determining the willingness and desire to part with commodities, there are many other factors which determine the supply of a product or a service. These are discussed below:

(i) Price of the good: Other things being equal, the higher the relative price of a good the greater the quantity of it that will be supplied. This is because goods and services are produced by the firm in order to earn profits and, ceteris paribus, profits rise if the price of its product rises.

(ii) Prices of related goods: If the prices of other goods rise, they become relatively more profitable to the firm to produce and sell than the good in question. It implies that, if the price of Y rises, the quantity supplied of X will fall. For example, if price of wheat rises, the farmers may shift their land to wheat production away from corn and soya beans.

(iii) Prices of factors of production: Cost of production is a significant factor that auects supply. A rise in the price of a particular factor of production will cause an increase in the cost of making those goods that use a great deal of that factor than in the costs of producing those that use relatively small amount of the factor. For example, a rise in the cost of land will have a large euect on the cost of producing wheat and a very small euect on the cost of producing automobiles. Thus, a change in the price of one factor of production will cause changes in the relative profitability of diuerent lines of production and will cause producers to shift from one line to another and thus supplies of diuerent commodities will change.

(iv) State of technology: The supply of a particular product depends upon the state of technology also. Inventions and innovations tend to make it possible to produce more or better goods with the same resources, and thus they tend to increase the quantity supplied of some products and to reduce the quantity supplied of products that are displaced. Availability of spare production capacity and the ease with which factor substitution can be made and the cost of such substitution also determine supply.

(v) Government Policy: The production of a good may be subject to the imposition of commodity taxes such as excise duty, sales tax and import duties. These raise the cost of production and so the quantity supplied of a good would increase only when its price in the market rises. Subsidies, on the other hand, reduce the cost of production and thus provide an incentive to the firm to increase supply. When government imposes restrictions such as import quota on inputs, rationing of input supply etc, production tends to fall.

(vi) Nature of competition and size of industry: Under competitive conditions, supply will be more than that under monopolized conditions. If there are large number of firms in the market, supply will be more. Besides, entry of new firms, either domestic or foreign, causes the industry supply curve to shift rightwards.

Other Factors: The quantity supplied of a good also depends upon government’s industrial and foreign policies, goals of the firm, infrastructural facilities, natural factors such as weather, floods, earthquake and man-made factors such as war, labour strikes, communal riots and etc.

Goods and Service Tax Book (Updated upto 20th January 2018)

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Intermediate and CA final. 

Also useful for B.Com / M.Com / MBA/ BBA/UPSC/ SSC and Various Govt Exams.!! 

This book is approved by Ministry of HRD Govt.of India as Students friendly book.

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Author Name- CA Harshita Raichandani and CA Dhananjay Ojha

Unique features of This GST Book.

1.80+ GST chart included for quick revision of chapter.

2.Provisions presented in this book in simple manner.

3.Bullet and Heading given for Long term memorisation.

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5.70+ Value added questions given with answer.

6.16 Chapters fully Coverage given.

7.Definitions of Technical term related with GST is given at one place.

8.Most useful for CA Intermediate/IPCC, CS executive , CWA Intermediate and CA final. ALSO useful for B.Com / M.Com / MBA/ BBA/UPSC/ SSC and Various Govt Exams.

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GST (Goods and Services Tax) Book -A student friendly Book. - Bharat Gurukul

GST Student friendly Book most relevant/Useful for CA Intermediate/IPCC, CS executive , CWA Intermediate