Supply and its determinants
Supply and its determinants


Production is the process of turning inputs into the output of goods or services. The role of a firm is to organize scarce resources to satisfy consumer demand in a profitable way. Supply is defined as the willingness and ability of firms to produce a given quantity of output in a given period of time, or at a given point in time, and take it to market. Not all output is taken to market, and some output may be stored and released onto the market in the future.

Supply can be measured for a single factor of production, for a single firm, for industry, and for the whole economy.

Determinants of supply:-

  • The price of the product is the starting point in building a model of supply. The supply model assumes that price and quantity supplied are directly related.

  • The availability of factors of production, such as labour or raw materials, can affect the amount that can be produced and supplied. 
  • Changes in cost will alter a firm’s calculation of how much to supply at a given price
  • Changes in the weather can have a considerable impact on the ability to produce certain products, like farm produce and goods. This tends to affect the primary sector more than manufacturing.
  • Taxes on products, such as value added tax (VAT), have a direct effect on supply. 
  • Subsidies are funds given to firms to enable them to increase their supply or to reduce the price of their product to the consumer. 

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