9 Main Determinants of Supply are described below:
(i) Price:
The higher the price offered for a product by the market, the higher would be its supply if everything else remains unchanged.
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(ii) Prices of related goods:
Related goods include substitutes and complements. If the price of coffee offered by the market rises, it clearly marks consumers’ preference for it over tea (a substitute). If the trend continues, supply of coffee will go up and that of tea will get curtailed to avoid loss.
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The opposite will the case be when market offers lower prices for coffee. Slightly different is the case with the supply of complements. When price of petrol falls, supply of automobiles goes up in anticipation of a hike in their demand.
On the other hand, if the price of ink offered by the market falls, so does the supply of ink-pens (complements) in anticipation of a likely loss of demand for ink-pens. The opposite is the effect on the supply of ink-pens when market offers rising prices for ink.
(iii) Cost of production:
When production cost rises, given the market price of the product, its supply falls. Increasing costs, in the face of fixed market prices, reduce the producers’ profit margins and compel them to switch over to production of goods that offer them higher profit margins. The opposite will be the case when the production costs fall while market price is unchanged.
(iv) Change of technology:
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Under a better technology, production is often cheaper and better in quality. In such circumstances, producers can afford to supply more even when market price remains unchanged.
(v) Goal of production:
Producers aim either at profit maximisation or at sales maximisation. Under sales maximisation, supply is usually higher than what it is likely to be under profit maximisation. In the latter case, producers control the supply with a view to maximizing their profits, while in the former case they do the opposite even if it amounts to reducing the price.
Large scale production helps them to cut costs on the one hand, and on the other, sales in bulk, even if made at lower prices, allow them a fair share of the pie.
(vi) Strength or weakness of infrastructure:
Infrastructure refers to the means of transportation, communication, banking and insurance. A highly developed infrastructure boosts supply while a weak infrastructure deters it.
(vii) Natural resources:
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Abundant natural resource helps production of basic inputs. For instance, a sound agricultural base may help production of raw cotton which is so crucial for the textile industry. Likewise, underground deposits of minerals, metals and crude petroleum may boost the supply of a variety of goods.
(viii) Availability of time:
Supply of products is generally fixed in the short period because it is not possible to increase the fixed factors of production at short notice. In the long run, the situation is, however, different.
(ix) Economic environment:
Government policies of taxation and subsidies, business conditions, nature of competition among the firms in the market, availability of credit and finance, etc., influence supply of products quite a lot. Even social, political and religious factors have a great influence on supply.
