Factors affecting supply

• Price of a good

  The higher the price, the higher the qty supplied

  The lower the price, the lower the qty supplied
• Natural factors

  • Examples of natural factors are weather conditions , pests and diseases.
  • When natural factors favour production, supply increases.
  • When natural factors do not favour production, supply decreases.
• State of technology

  • Improved state increases the qty supplied.
  • Poor state decreases the qty supplied.
• Cost of production

  • Increase in COP (e.g increase in price of raw materials) leads to increase in total COP.
  • This increases the price of goods and reduces the demand leading to a decrease in the supply of goods.
• Government policies


  They are:

  1. Subsidies
  2. Taxation
  3. Price control
  4. Quotas
• Subsidies

  • A subsidy is a financial grant given by the govt to producers to lower COP and increase supply.
  • This makes it possible to sell the goods at cheaper prices which increases supply due to higher demand.
• Taxes

  • By imposing taxes on the factors of production, it leads to increased COP.
  • This leads to increase in price leading to lower demand hence a decrease on supply.
• Price Control

  • Govt uses price control to either encourage or discourage production of a commodity.
• Quotas

  • Quotas - Physical limitations by the govt on the amt of goods imported from other countries.
  • Usually , the amt of goods imported is limited which encourages local producers to produce more.
• Future expectations of price changes

  • When producers expect prices to increase in future, they hoard the goods with the aim of selling them when prices increase.
  • This reduces the supply of the good.
• Entry into or withdrawal of firms from the industry.

  With the assumption that the no. of old firms and their lvl of production does not change...

  • Entry of a new firm into the industry will lead to increase in qty supplied.
  • Withdrawal of a firm from the industry leads to a decrease in qty supplied.