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Economics explained


Demand and supply

Factors influencing supply

Factors influencing supply

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The higher the costs of production, the less profit will be made at any price. As costs rise, firms will cut back on production, probably switching to alternative products whose costs have not risen so much

Examples: cost of energy, labour and transport.

Size and nature of the industry:

If an industry is growing in size, then more will be supplied to the market.

If new firms enter the market, supply is likely to increase.

The profitability of alternative products (substitutes in supply).

If a product which is a substitute in supply becomes more profitable to supply than before, producers are likely to switch from the first good to this alternative.

Government policy

Taxes imposed on the supplier of a product add to the costs of production. Therefore the imposition of taxes on a product reduces its supply, shifting the supply curve to the left. Subsidies are a form of financial assistance from the government to help encourage output by reducing the costs of production.

Change in technology

Technological advances such as automation, computers and wireless internet mean that there can be greater levels of output at every price level. Hence, technological progress will tend to shift the supply curve to the right.

Other factors

Other factors would include the weather and diseases affecting farm output, wars affecting the supply of imported raw materials, the breakdown of machinery, fire etc.

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