Question

Discuss four determinants of supply of a commodity.

Answer 1

Four determinants of supply of a commodity:

1) Number of firms in the industry: Market supply of a commodity depends upon number of firms in the industry. Increase in the number of firms implies increase in market supply.

2) Goal of the firm: If goal of the firm is to maximize profits, more quantity of the commodity will be offered only at a higher price. If the goal of the firm is to maximize sales, more will be supplied at the same price.

3) State of technology: Improvement in the technique of production reduces cost of production and more commodity is supplied at its existing price.

4) Government policy: Increase in taxation may decrease supply, while increase in subsidiesmay increase it.