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Economic Theory

of production (F), technology (T) and goals (G) or general objectives of
the producer.
Just as was in the case of demand, entire supply functions can shift as
well. Shifts of entire functions are due to reasons other than a change in

the goods own price. As was the case for demand, there are also five
“classic” supply function shifters. A Table 5.2 includes the list of the

factors that determine supply of a product.

Table 5.2 – Determinants of Supply

Factors Results
Producer The change in technology also affects supply of a product. It may
Technology reduce the cost of production and as a result supply will be more.
Automatic and digital photocopier machines have increased the
speed of photocopy per unit and hence large production.
Costs of Changes in prices of factors also cause a change in cost of
production production and thereby bring changes in the supply of the product.
When costs of factors come down, it reduces the overall cost of
production and as a result producers are induced to produce and
supply more.
Number of If there is only one producer of a good, that producer is free to price

Producers the goods being made at any level the producer wants, and the only
choice the consumer makes is to either purchase the goods at the
price the seller chooses or to not purchase the goods. If the price is
high enough so that few consumers want and can afford the good,
then the single producer may be forced to lower the price in order
to sell the goods. But more producers results in more competition
among firms offering the same or similar goods for sale.
Competition among suppliers tends to lower prices for goods as
firms compete for the pool of buyers.
Producer If sellers expect the prices to rise in future, they would reduce
Expectations supply of a product in the market and hoard the commodity to sell
in the future. This is specially done for earning high profits. For
example, when traders expect that price of kerosene oil will rise
further, they create artificial scarcity and stock so as to sell and reap
high profits in future.
Prices of Prices of substitutes and complements also affect the supply of a
Related product. For example, if prices of tea rise, it will result in the
Goods reduction in the production and supply of coffee as the producers
will withdraw resources from the production of coffee and devote
these to the production of tea.

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