Page 48 - VIRANSH COACHING CLASSES

will reduce the supply and vice versa
Try this :
Draw a supply curve with the help of a 8) Other factors : It includes,
hypothetical supply schedule. • nature of the market,
• relative prices of other goods,
Determinants of Supply : • export and imports,
1) Price of commodity : Price is an important • industrial relations,
factor influencing the supply of a • availability of factors of production etc.
commodity. More quantities are supplied If all factors are favourable, supply of a
at a higher price and less quantities are commodity will be more and vice versa.
supplied at a lower price. Thus, there is Law of Supply
a direct relationship between price and Introduction :
quantity supplied.
The law of supply is also a fundamental
2) State of technology : Technological principle of economic theory like law of
improvements reduce the cost of production demand. It was introduced by Prof. Alfred
which lead to an increase in production and Marshall in his book, ‘Principles of Economics’
supply. which was published in 1890. The law explains

3) Cost of Production : If the factor price the functional relationship between price and
increases, the cost of production also quantity supplied.
increases, as a result, supply decreases.
Statement of the Law :
4) Infrastructural facility : Infrastructure “Other things being constant, higher the
in the form of transport, communication, price of a commodity, more is the quantity
power, etc. influences the production process supplied and lower the price of a commodity less
as well as supply. Shortage of these facilities is the quantity supplied”
decreases the supply and vice versa. In simple words, “other factors remaining
5) Government policy : Favourable constant, a rise in price results in a rise in the
Government policies may encourage supply quantity supplied and vice-versa. Thus, there is
and unfavourable government policies a direct relationship between price and quantity
may discourage the supply. Government supplied.
policies like taxation, subsidies, industrial Symbolically,
policies, etc. may encourage or discourage Sx = f (Px)
production and supply, depending upon S = Supply
government policy measures. x = Commodity
6) Natural conditions : The supply of f = Function
agricultural products depends on the natural P = Price of commodity
conditions. For example, a good monsoon Assumptions of the law :
and favourable climatic condition will The law of supply is based on the following
produce a good harvest, so the supply of assumptions :
agricultural products will increase and 1) Constant cost of production : It is assumed
unfavourable climatic conditions will lead that there is no change in the cost of
to a decrease in supply. production .A change in cost of production
7) Future expectations about price : If the will affect the profits of the seller. Therefore
prices are expected to rise in the near future, less quantity will be supplied at the same
the producer may withhold the stock. This price.

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