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Question
Answer the following questions in detail.
What is meant by Supply? State its determinants.
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Solution
Supply refers to the total amount of a commodity that the seller is willing and able to offer for sale in the market at a particular point of time.
The supply of a commodity is affected by a large number of varying factors. The following are some of the factors that determine supply.
i. Price of the good- With a rise in the price of a good, its supply will rise as the seller is getting a higher price of a good.
ii. Price of related goods- With rise in prices of other goods, the supply of the good in question falls and vice-versa.
iii. Technology of production- With technological improvements, the cost of production falls leading to an increase in supply.
iv. Price of factors of production- If the price of factors rises, the input costs rises, leading to a fall in supply.
v. Government policies- Depending upon the favourable or unfavourable policy decisions, supply changes.
vi. Nature of market- In perfect competition, the supply of a commodity will be more as compared to the supply of good in a monopoly or single seller market.
vii. Expectation of future prices- If the future prices are expected to rise then the supply of a commodity will fall as the producer will hold the goods for future sale.
