What are the main factors that affect supply?
When price changes, quantity supplied will change. This means that either the quantity or quality of the products will decrease as either product get more expensive or become cheaper demand may also wall. There will be a movement along the same supply curve. When factors other than price changes, the supply curve will shift. Here are some determinants of the supply curve.
Some of the main factors which affect supply are as follows:
- Production cost: Since most private companies’ goal is profit maximization. Higher production cost will lower profit meaning that there will be less supply available. Factors affecting production cost are input prices, wage rate, government regulation and taxes which can all affect the supply of a business’s product.
- Technology: Technological improvements such as a 3d printer can help reduce production cost and increase profit, therefore, business is able to produce higher supply at a lower cost.
- Number of sellers: More sellers in the market increase the market supply as there will be more places for the products made to get sold but the price may get decreased as the product becomes more well-known and can be found in most shops.
- Expectation for future prices: This can also be seen to affect demand as well as supply, as if producers expect future price to be higher, they will try to hold on to their inventories or may charge the products at a hefty price and offer the products to the buyers in the future, so that they can capture the higher price.