Determinants of Supply

a) The cost of factors of production: When the costs of inputs increase, the cost of production will rise, and the producers may have to fix higher prices to cover the increased costs. A fall in input price will reduce the costs and permit supply at a lower price.

b) State of Technology: Improvement in technology reduces the cost of production and increases the supply.

Factors outside the economic sphere like a flood, drought, etc. will decrease the supply.

c) Taxation and subsidy: Higher taxation will increase the price, and as a result, supply will come down. E.g., If additional tax is imposed on television, its supply will come down. Granting subsidies will increase supply. For instance, if more grants are given for biogas plants, fertilizer, etc. more will be their supplies.

d) Price of the commodity: When the price of one commodity increases, its supply also increases.

e) Price of related goods: If the market price for soybean increases, all other conditions remaining the same, then the farmer would allow more land meant for other crops to soybean, and therefore, the supply of soy would be increased.