Question

Explain two factors affecting supply other than price.

Answer 1

(i) Government Taxation Policy:

The effects of change in taxes is inversely felt on the supply of a product. As the government increases the taxes, the profit margin of the product narrows. This, in turn, makes the producer decrease the supply. On the contrary, tax concessions and subsidies are tools generally used by the government to increase the supply of certain products as such measures ensure an increased profit margin for the suppliers.

(ii) Cost of Production:

Implies that the supply of a product would decrease with increase in the cost of production and vice versa. The supply of a product and cost of production are inversely related to each other.