Explain how the following factors affect the supply of the commodity (any two)
a) Price of factor inputs
b) State of technology
c) Government taxation Policy
Supply of a commodity is affected by following factors:
a) Price of factor Inputs: If factor input price increases, cost of production generally rises, accordingly producers are willing to supply less at the existing price as the profit probability decreases. This implies leftward shift in supply curve and vice-versa, keeping other factors constant.
b) State of Technology: Improvement in technique of production raises productivity and generally lowers per unit cost of production, consequently the probability to earn more profit also increases and hence the producer is induced to supply more, as a result supply curve shifts towards right.
c) Government Taxation Policy: If government increases taxes, it will affect the cost of production adversely and hence supply decreases. But if Government decreases the tax the cost of production will fall and the producer will be induced to increase the supply of the commodity,ceteris paribus.