📌 Determinants of Supply
(Also called Factors Affecting Supply)
These are the factors that cause the supply curve to shift → right (increase in supply) or left (decrease in supply).
1. Price of the Product
Higher price → producers supply more
Lower price → supply falls
(But this is NOT a shift factor; this moves along the curve.)
2. Cost of Production
If production becomes cheaper, supply increases.
If production becomes expensive, supply decreases.
Examples: rise in wages, costlier raw materials, higher electricity bills.
3. Technology
Better technology → faster, cheaper production → supply increases.
Old or inefficient technology → supply decreases
4. Prices of Related Goods
Producers shift to making goods that give more profit.
Example: If the price of butter rises, producers may reduce ghee production and increase butter supply.
5. Government Policies
Subsidy → reduces cost → supply increases
Taxation (GST/excise) → increases cost → supply decreases
6. Number of Sellers
More sellers in the market → supply increases.
Fewer sellers → supply decreases.
7. Expectations of Future Prices
If producers expect future prices to rise, they may reduce present supply to sell later at a higher price.
If they expect prices to fall, they increase current supply.
8. Natural and Climatic Conditions
Applicable mainly to agricultural goods.
Good weather → higher supply
Floods, drought → lower supply
9. Availability of Inputs
If raw materials, labor, or capital are easily available → supply increases.
Shortage of inputs → supply decreases.