Determinants of Supply

Determinants of Supply

Variables other than prices also affect the supply curve by shifting the entire curve. This is because changes in these variables will mean that at each and every price, producers will be able to produce either more or less than before, and a new supply curve will be drawn. The major variables other than price are:
Money costs of production: The cost of factor inputs like land, labour, capital has a major influence on supply. If at any given level of output, there is an increase in costs of production, this will reduce the ability of producers to purchase factors of production at any given price for their product. In consequence, the supply curve will shift to the left – there will be reduction in supply and vice versa.
Events beyond human control like good/bad harvest, weather conditions and natural disasters like floods.
Taxes and subsidies also have an important effect on supply.
Thus, in the example of the cassettes, shifts in supply and movement along a supply curve can be shown as follows Figure 3.3.
If the price of cassette rentals is Rs 1.50, 5 cassettes would be supplied (Point A). But if the price of cassettes rentals increases for some reason to say Rs 2.50, suppliers would increase supply to 9 (Point B) — The change in price results in a movement along the supply curve (A to B).
If some new technology were introduced, lowering the cost of producing the cassette, then suppliers would supply seven cassettes instead of five at the price of Rs 1.50 (Point C). An improvement in technology results in a shift in the supply curve from S to S1.