The 2023's Guide On Determinants Of Supply | Definition & Explanation (2024)

Finance and Economics Terms

Determinants of supply are the factors that affect the supply of a product or service and that cause a shift in the supply curve.

However, these factors are held constant (according to the law of supply) to alleviate the effect of the law of supply especially with relation with quantity supplied and the supply price.

When the determinants change the supply curve shifts from one side to the other, and these supply determinants are said to determine the location of the supply curve at a certain point in time.

So what are the determinants of supply?​

There are numerous factors that determine supply, and there are a total of 6 determinants of supply, including:

  1. Innovation of the technology
  2. The number of sellers in the market
  3. Changes in expectations of the suppliers
  4. Changes in theprice of a product or service
  5. Changes in the price of related products
  6. Changes in tax and subsidies

We will have a look at each of these determinants in the following sections.

More...

6 Determinants of Supply

4.Price of a Product or Service

5.Price of Related Products

6.Tax and Subsidies

1. Innovation of theTechnology

Modern technology incorporation in business and service delivery enables efficient, and efficacy in the production of goods and delivery of services reduces the overall costs of the final product.

The reduction in the production cost through technology will increase profits.Therefore, the supply increases and the supply curve will shift rightwards.

Technology rarely deteriorates and it ensures the business remains efficient therefore a constant supply of the goods and services.

2.Number of Sellers in the Market

When the number of sellers is high in a certain market, the quantity of product or service supplied to that market will be high and vice versa.

Therefore, an increase in the number of sellers in a market will decrease the supply and the supply curve shifts leftwards.

An example is a situation where more companies enter into an industry, this will increase the number of sellers, and therefore supply will increase as well.

3.Expectations of the suppliers

Changes in the expectations of the suppliers about the future price of a service or a product may affect the current supply.

However, unlike the other determinants of supply, the expectations of the supply can be quite difficult to generalize.

For example, when farmers anticipate that the price of the crop will increase. This will cause them to withhold the produce to benefit from a higher price.

This, in turn, reduces the supply and in the context of manufacturers when there is an expected increase in price then they will employ more resources to increase the output.

This is a major cause of an increase in supply.

4.Price of a Product or Service

An increase in the prices of the inputs will increase production costs.This will, in turn, shrink the profits.

Moreover, a decrease in the prices of the inputs will increase profits.

Since profit is a major incentive the producers supplying goods and services to a certain market will increase, the production of service or product when there is low production costs and vice versa.

An increase in the price of the inputs will reduce the supply of the commodity, the supply curve will shift leftwards, and a decrease in the price of inputs the price increases and the supply curve will shift rightwards.

5.Price of Related Products

Companies which manufacture related products, such as detergents, will shift their production to a particular product if that product is manufactured in large quantities.It increases the price, and there will be a reduction in supply.

An example is a firm that produces soccer balls and basketballs, when the price of soccer balls increases the firm will produce more soccer balls and less of basket balls, this means that the supply of basketballs will reduce.

6.Tax and Subsidies

High taxes reduce profits because the suppliers will have to pay huge bills to cater for their production.

Subsidies, on the other hand, reduces the cost of production, and the suppliers can gain profits by selling the product or service

An increase in subsidies will increase supply and a decrease in subsidies will decrease supply in the same manner.

Disclaimer: The contents of this article are for informational and entertainment purposes only and should not be construed as financial advice or recommendations to buy or sell any securities.

What's More?

  • Price Floor
  • Determinants of Demand
  • Crossover Rate
  • Market Value Added (MVA)

The 2023's Guide On Determinants Of Supply | Definition & Explanation (1)

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The 2023's Guide On Determinants Of Supply | Definition & Explanation (2024)

FAQs

What are the 7 determinants of supply and explain each? ›

Major determinants of supply include the price of the product or service, price of a related item, price of factors of production, technology intervention, administrative policy, and price speculations.

What is the definition of supply and its determinants? ›

Determinants of supply definition refer to factors that influence the supply of certain goods and services. These factors include the price of inputs, the company's technology, future expectations, and the number of sellers. Determinants of supply are factors that directly affect the supply of a good or service.

What are the 5 determinants of supply Quizlet? ›

Q-Chat
  • Resource Prices/Change in Cost of Inputs. ...
  • Technology. ...
  • Taxes and Subsides. ...
  • Prices of Related Goods. ...
  • Expectations. ...
  • Number of Sellers. ...
  • Worker Motivation. ...
  • Law of Supply.

What is the most obvious determinants of supply? ›

The most obvious one of the determinants of supply is the price of the product/service. With all other parameters being equal, the supply of a product increases if its relative price is higher. The reason is simple. A firm provides goods or services to earn profits and if the prices rise, the profit rises too.

What are the five 5 determinants of supply? ›

Determinants of supply
  • Price of the Commodity.
  • Firm Goals.
  • Price of Inputs or Factors.
  • Technology.
  • Government Policy.
  • Expectations.
  • Prices of other Commodities.
  • Number of Firms.

What are the determinants of supply in simple terms? ›

Determinants of supply are the factors that can causes changes to, or affect, the supply of a product in the market. There are a number of factors that can affect, influence and determine supply, and they tend to define the state, nature and trend of supply over time.

What is the law of supply? ›

What Is the Law of Supply? The law of supply is a basic economic concept. It states that an increase in the price of goods or services results in an increase in their supply. Supply is defined as the quantity of goods or services that suppliers are willing and able to provide to customers.

How many supply determinants are there? ›

The seven determinants of supply are: Resource prices: The cost of resources, such as raw materials and labor, can have a significant impact on the supply of a product. Technology: Advances in technology can increase productivity and efficiency, which can increase the supply of a product.

What is an example of a supply function? ›

For example : If ten people want to buy a phone, and there is only one phone, then the trade will be based on the level of demand for the phone. The supply function requires more phones, which produces more production to match demand.

What are the 6 factors that affect supply explain them? ›

Supply shifters include (1) prices of factors of production, (2) returns from alternative activities, (3) technology, (4) seller expectations, (5) natural events, and (6) the number of sellers. When these other variables change, the all-other-things-unchanged conditions behind the original supply curve no longer hold.

How to explain supply curve? ›

A supply curve is a graph that shows how a change in the price of a good or service affects the quantity a seller supplies. Price is listed on the vertical y-axis, while quantity supplied is listed on the horizontal x-axis.

What is one of the six determinants of supply? ›

changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a good's production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, ...

Which factor does not influence supply? ›

The correct answer is d) The number of buyers. The factors that influence supply shift the supply curve from its original position. The number of buyers does not shift the supply curve. Changes in the number of buyers can cause shifts in the demand curve.

What is an example of supply and demand in real life? ›

For example, a clothing store has a number of winter coats left in March, as the weather becomes warmer. To sell off leftover inventory, the retailer will often reduce prices, driving demand for the lower-priced coats.

What are the factors that can cause a change in supply? ›

The general consensus amongst economists is that these are the primary factors that cause a change in supply, which necessitates the shifting of the supply curve:
  • Number of sellers.
  • Expectations of sellers.
  • Price of raw materials.
  • Technology.
  • Other prices.
Aug 31, 2023

What are the seven determinants of supply know them by definition and be able to show how they change supply? ›

changes in non-price factors that will cause an entire supply curve to shift (increasing or decreasing market supply); these include 1) the number of sellers in a market, 2) the level of technology used in a good's production, 3) the prices of inputs used to produce a good, 4) the amount of government regulation, ...

What are the seven factors determinants that shift supply? ›

Supply shifters include (1) prices of factors of production, (2) returns from alternative activities, (3) technology, (4) seller expectations, (5) natural events, and (6) the number of sellers. When these other variables change, the all-other-things-unchanged conditions behind the original supply curve no longer hold.

What are the 7 factors of demand? ›

Market factors affecting demand of consumer goods
  • Price of product.
  • Tastes and preferences.
  • Consumer's income.
  • Availability of substitutes.
  • Number of consumers in the market.
  • Consumer's expectations.
  • Elasticity vs. inelasticity.

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