Explain with reasons whether you 'agree' or 'disagree' with the following statement:
Price is the only determinant of supply.
Price is the only determinant of supply.
No. Price is not the only
determinant of supply. While the price is an important aspect for determining the
willingness and desire to part with goods/services, many other factors
determine the supply of a product or service as discussed below:
1.Price of Related Goods: if the price of related goods rises,
then the firm increases the supply of the goods having a higher price. This
leads to a drop in the supply of the goods having a lower price.
2.Price of the Factors of Production: Production
of a good involves many costs. If there is a rise in the price of a particular
factor of production, then the cost of making goods that use a great deal of
that factors experiences a huge increase.
3.State of Technology: Technological
innovations and inventions tend to make it possible to produce better quality
and/or quantity of goods using the same resources. Therefore, the state of
technology can increase or decrease the supply of certain goods.
4.Government Policy: Commodity taxes
like excise duty, import duties, GST, etc. have a huge impact on the cost of
production. These taxes can raise overall costs. Hence, the supply of goods
that are impacted by these taxes increases only when the price increases. On
the other hand, subsidies reduce the cost of production and usually lead to an
increase in supply.
5.Other Determinants: There are many
other factors affecting the supply of goods or services like
the government’s industrial and foreign policies, the goals of the firm,
infrastructural facilities, market structure, natural factors, etc.
No. Price is not the only determinant of supply. While the price is an important aspect for determining the willingness and desire to part with goods/services, many other factors determine the supply of a product or service as discussed below:
1.Price of Related Goods: if the price of related goods rises, then the firm increases the supply of the goods having a higher price. This leads to a drop in the supply of the goods having a lower price.
2.Price of the Factors of Production: Production of a good involves many costs. If there is a rise in the price of a particular factor of production, then the cost of making goods that use a great deal of that factors experiences a huge increase.
3.State of Technology: Technological innovations and inventions tend to make it possible to produce better quality and/or quantity of goods using the same resources. Therefore, the state of technology can increase or decrease the supply of certain goods.
4.Government Policy: Commodity taxes like excise duty, import duties, GST, etc. have a huge impact on the cost of production. These taxes can raise overall costs. Hence, the supply of goods that are impacted by these taxes increases only when the price increases. On the other hand, subsidies reduce the cost of production and usually lead to an increase in supply.
5.Other Determinants: There are many other factors affecting the supply of goods or services like the government’s industrial and foreign policies, the goals of the firm, infrastructural facilities, market structure, natural factors, etc.
