EXPLAIN HOW A CHANGE IN EACH DETERMINANT OF SUPPLY SHIFTS TH

EXPLAIN HOW A CHANGE IN EACH DETERMINANT OF SUPPLY SHIFTS THE SUPPLY CURVE – AND ITS RESULT ON PRICE AND QUANTITY.

NUMBER OF SELLERS (#S)

TECHNOLOGY (TECH)

COST OF RESOURCES (Cost)

TAXES (TAX)

SUBSIDIES (SUB)

EXPECTATIONS OF PROFITS FOR PRODUCERS (EXP )

Solution

1) Number of sellers:-

If there is increase in number of sellers in the market, Supply increases. If there is decrease in number of sellers in the market, Supply decreases.

2) Technology:-

If there is improvement in production technology used by the firm, the cost of production declines and supply of commodity increases. The use of obsolete technology raises the cost of production and consequently supply of commodity decreases.

3) Cost of resources:-

If there is reduction in the input prices (cost of resources), the cost of production will fall and supply increases. When input prices (cost of resources) increase causing increase in cost of production, supply tends to decrease.

4) Taxes and Subsidies:-

If there is increase in tax on the production of goods and services, producer would be willing to sell less at existing price, or he will sell the same quantity of commodity only at a higher price. This implies a situation of decrease in supply.

If government is granting subsidy, cost of production of producer tends to fall and supply increases.

5) Expectations of profits for producers:-

When the goal of the firm shift from sales maximization to profit maximization, Supply will decrease and When the goal of the firm shift from profit maximization to sales maximization, Supply will increase.