10 Factors Affecting Supply of a Product

7 factors that affect supply
7 factors that affect supply

Say we have an initial supply curve for a certain kind of car. Speculation about future price can also affect the supply of a product. If the price of a product is about to rise in future, the supply of the product would decrease in the present market because of the profit expected by a seller in future. However, the fall in the price of a product in future would increase the supply of product 7 factors that affect supply in the present market. At this level, the market value is enough to induce suppliers to deliver to market that very same quantity of goods that consumers shall be prepared to pay for at that worth. The precise worth and quantity the place this happens depends on the form and position of the respective supply and demand curves, each of which may be influenced by numerous components.

As a result, even if the price of a product rises, the supply does not. If the price of wheat rises, for example, farmers will cultivate more wheat rather than rice. This might reduce the amount of rice available on the market. Overall, pricing is the most important element affecting a product’s availability. One of the best small business tips you can get is to properly prepare your company for any scenario when it comes to supply and demand. On the flip side, a lack of strong demand for a product or service will cause a company to struggle to attract outside investment to turn the company around.

Market Supply refers to the quantity of a commodity that all the firm/all the producer are willing and able to offer for sale, at each possible price during a particular or given period of time. Individual Supply refers to the quantity of a commodity that a firm /producer is willing and able to offer for sale, at each possible price during a particular or given period of time. Supply refers to the quantity of a commodity that a firm/producer is willing and able to offer for sale, at each possible price during a particular or given period of time. There would be an increase in output if the factors were accessible in adequate quantity and at a reduced price.

Religious, moral and psychological factors influence the demand pattern for certain goods. Having explained the meaning of demand and the law of demand with various examples, we will now discuss the various factors that affect demand and supply in economics. Many smaller CPG companies are reactive to the market, not proactive.


A new machine may have been invented, a new process discovered, or a new material found, or perhaps a new use may have been found for a by-product. The discoveries of synthetic dyes, artificial rubber and wool are some such discoveries or improvements in technique. Increase in government subsidies will also reduce the cost of goods, e.g. train subsidies reduce the price of train tickets. Existence of internal peace and stability will increase the production and supply of a good. With political disturbances, labor unrest and wars production and supply of a good will be hampered.

This year will bring unexpected twists and turns that will require continued agility, resilience and adaptability in supply chains. As a CPG company, one of the biggest challenges you face is anticipating the demand of consumer goods. In addition the seller can also lose his/her customers because of the delay in. If a vertical line is dropped down from the brand new equilibrium level to the outdated provide line, this may equal the tax. Market Supply curve refers to a graphical representation of Market supply schedule.

He expects the minimum price to be Rs. 90 per kg and the market price is Rs. 95 per kg. Therefore he would release certain amount of the product, say around 50 kgs in the market, but would not release the whole amount. The reason being he would wait for better rates for his product. In such a case, the supply of his product would be 50kgs at Rs. 95 per kg.

  • Taxation effect on the supply curve is to shift all costs up by the quantity taxed, so a ten% items and services tax would increase costs in any respect quantities equipped by 1/10.
  • Increase in the prices of other goods makes them more profitable in comparison to the given commodity.
  • However, the decrease in market price as compared to cost price would reduce the supply of product in the market.
  • In the quick-time period, the worth will stay the identical and the amount sold will enhance.

There are tons of factors that can help determine the elasticity of a product. But, knowing that number can help you anticipate demand more precisely. Sometimes a simple change in price can make all the difference. Unfortunately, the demand for consumer goods is affected by many different factors including product price, consumer income and expectations. Therefore, if a value for a particular product goes up and the shopper is aware of all related info, demand shall be lowered for that product. That is, the amount demanded usually rises causing a downward sloping demand curve.

A technological improvement that reduces costs of production will shift supply to the right, so that a greater quantity will be produced at any given price. A variable that can change the quantity of a good or service supplied at each price is called a supply shifter. Supply shifters include prices of factors of production, returns from alternative activities, technology, seller expectations, natural events, and the number of sellers.


A shift can be an increase in demand, strikes in direction of the right or upwards, while a decrease in demand is a shift downwards or to the left. Supply and demand is an financial model of worth willpower in a market. At any given point in time, the provision of an excellent delivered to market is mounted. The cost of production for many agricultural products will be affected by changes in natural conditions. For example, the area of northern China that typically grows about 60 percent of the country’s wheat output experienced its worst drought in at least fifty years in the second half of 2009. For a single change case, draw the brand new curve, and check the new intersection corresponds to an expected commonsense price or amount change.

The lowering of interest rates and taxes can encourage spending and economic growth. This in turn has a tendency to push market prices higher. However, the market does not always respond in this way because other factors may also be at play. Higher interest rates and taxes, for example, can deter spending and result in a contraction or a long-term fall in market prices.

7 factors that affect supply

The fiscal policy of the Government also may affect the supply. For instance, a higher import duty will restrict the supply and a lower duty will stimulate it. These are some of the factors which bring about changes in the conditions of supply and increase it or decrease it. Take, for example, a messenger company that delivers packages around a city. The company may find that buying gasoline is one of its main costs.

Factors affecting Supply

If you’re not maximizing your promotional spending, you’re hurting your bottom line. Once you know more about your customers and why they shop for your products, you can develop CPG marketing materials to appeal to their tastes and sensibilities. By comparison, demand for inelastic goods doesn’t fluctuate much from external factors. For example, if the price of Product A goes up, but the sales volume stays constant, that product is inelastic.

Surely the price will enhance, but relying on how far the supply curve shifts left, the equilibrium amount could possibly be more, less or the identical . The regular cigarettes demand curve shifts left a little, because some less quantity is demanded on the authorized price. The provide curve might even shift proper, making higher quantity of the chop-chop at a lesser value than the increased value. Typically, the value will seem on the left vertical y-axis, while the amount demanded is proven on the horizontal x-axis. A change in demand occurs when urge for food for items and services shifts, even though costs stay fixed.

The cost of manufacturing and the supply of a commodity are diametrically opposed. If the cost of production rises, corporations will reduce their product supply in order to save money. The supply curve will travel higher from left to right, as indicated by the law of supply, which states that as the price of an item rises, so does the amount provided . As price increases firms have an incentive to supply more because they get extra revenue from selling the goods. In summary, labor supply is the total hours that workers or employees are willing to work at a given wage rate.

What are the 5 determinants of supply and demand?

Play the simulation multiple times to see how different choices lead to different outcomes. All simulations allow unlimited attempts so that you can gain experience applying the concepts. You can read more at our privacy page, where you can change preferences whenever you wish. Increased size of output leading to economies of scale and effective mass production. Lower direct taxes (e.g. tobacco tax, VAT) reduce the cost of goods.

With each additional slice, the consumer becomes more satisfied, and utility declines. In theory, the first slice might fetch a higher price from the consumer. › There are five types of supply—market supply, short-term supply, long-term supply, joint supply, and composite supply. If there is free entry into the industry or market, it will generally result in an increase of supply. When, for example, new poultry farmers join the industry, more eggs will be available for sale. From the definition above, It is also imperative to note that the supply of a commodity is different from the total stock of a commodity which the producer has produced.

Government policies can affect the cost of production and the supply curve through taxes, regulations, and subsidies. For example, the U.S. government imposes a tax on alcoholic beverages that collects about $8 billion per year from producers. Higher costs decrease supply for the reasons discussed above.

Factors Affecting Demand and Supply in Economics

We can look at either an individual demand curve or the total demand in the economy. In such a case the seller would wait for the rise in price in future. The cost of production rises due to several factors, such as loss of fertility of land, high wage rates of labor, and increase in the prices of raw material, transport cost, and tax rate. Changes in quantity demanded can be measured by the movement of demand curve, while changes in demand are measured by shifts in demand curve. The terms, change in quantity demanded refers to expansion or contraction of demand, while change in demand means increase or decrease in demand. Demand curves in combination with provide curves, which depict the price to amount relationship of producers, are a illustration of the goods and companies market.