Explain The Determinants Or Factors Affecting Law Of Supply?

• The factors which affects the supply of commodity is known as the determinants of market supply. They are:

(1) PRICE OF THE PRODUCT

• Price is the most important determinant of supply.
• Other things remain constant with increase in price the supply increase and with decrease in price the supply decreases.
  

(2) NATURAL FACTORS

• Natural factors like famines, floods, plant diseases, storms etc, affects adversely. The production of agricultural commodities and their market supply.
• Favorable climate factors like adequate and timely rain, favorable weather results in increasing agricultural output and their supply.
• Similarly earthquake, Tsunami, affects adversely to the production and supply of the product.
  

(3) COST OD PRODUCT

• The cost of production and supply are negatively co-related.
• The cost of production due to increase in the price of raw material, taxes, other factors of production, this have adverse effect on production and supply of goods.
• The cost of production decreases due to adoption of new technology, decrease in prices of raw materials requesting in increase in the production, so the supply of commodity increases.
  

(4) TECHNOLOGY OF PRODUCTION

• Market supply is depending upon the technique of production.
• Adoption of improved and updated technology, extensive use of research and development, improvement in labor efficiency and its skills had to increase in productivity and production. This leads to increase in market supply.

(5) PRICE OF RELATED PRODUCTS

• Change in the price of related products / substitutes also influence the supply of the commodity.
• Example:

1. it is price of wheat rises, the farmers would grow more wheat them rises, so the market supply of wheat increases and rise decreases.
2. if the price of sugar increase, the price of jiggery, so the supply of both sugar and jiggery both increases.

(6) ECPECTATION REGARDING FUTURE PRICE

• Expectation regarding fall or rise in price have adverse relation with supply of commodity.
• if the producers or sellers anticipate that the prices would rise in future, they without the stock to take advantage of future price rise and the market supply of goods will decrease.
• Reverse would happen if the producers or the sellers anticipate (expect) the prices to fall in future.

(7) TRANSPORT CONDITION

• Adequate quick and cheap means of transport together with an efficient network of communications leads to the movement of commodities from plenty to security area.
• Likewise updated communication system by providing necessary information regarding the price, quantity, use and availability of the product can have favorable impact on market supply.

(8) GOVERNMENT POLICY

• Government policies like industrial policy, trade policy, taxation policy, policy for subsidy etc. have effect on market supply of goods and commodities etc.
• Example

1. Increase in tax rate heads to increase in cost of production, so the production and supply will decrease.
2. Subsidies given by government and industrial policy leads to increase in production and supply.

(9) POLITICALSTABILITY

• Political stability in the country means stable and stable and strong government, maintenance of law and order. Security of like and property etc. creates favorable atmosphere to increase production and supply.
• On the other hand political instability, breakdown of law and order leading to chaos and anarchy, insecurity of life and property, frequent robberies etc. creates chaotic condition and discourage investment. So the production is low leas to decrease in supply.