Supply a commodity and factors affecting supply of a commodity PDF

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Supply a commodity and factors affecting supply of a commodity...

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Supply a commodity Supply a commodity by a producer, firm or seller may be defined as the quantity of a commodity that a producer / firm or seller offers for sale at a given price during a given time period. Law of supply states that when the price of a commodity increases its supply also increases. Similarly, when the price of a commodity decreases its supply also decreases. Hence, there is a direct or positive relationship between the price and supply of a commodity.

FACTORS DETERMINING SUPPLY OR DETERMINANTS OF SUPPLY OF A GOOD: Following are the important factors that determine or influence the supply of a commodity.

• Price of the commodity: Other factors determining supply remaining constant, there is a direct relationship between price and quantity supplied of a commodity. It signifies that the quantity of a commodity supplied grows as the price of the commodity rises and reduces as the price of the commodity falls. An increase in the amount of a commodity supplied at a higher price, and a decrease in the quantity of the commodity supplied at a cheaper price. For example, a rice merchant may be willing to sell 1000 kgs of rice at a price of Rs. 30 per kg, but only 100 kgs at a price of Rs. 25 per kg. The supply curve has a positive slope as a result of the direct relationship between the price of a commodity and the quantity of that commodity that is available for sale. The supply curve slopes upward as well as to the right.

• Price of factors of production: The change in the price of inputs such as raw materials, wages, rent, or interest has an impact on the supply of a commodity as well as its demand. Cotton, for example, is the most important raw material in the manufacture of textiles. If the price of cotton rises, the cost of manufacturing cloth will rise as well. The margin of profit will shrink if the pricing remains the same. As a result, the producer will reduce the amount of cloth available at the same price. The supply of fabric will increase as a result of a decrease in the price of cotton since the cost of production per unit of cloth will reduce as a result of this decline. A good's supply will be influenced by the price of other inputs in the same way that its demand will be influenced.

• Price of other related goods: Supply of a commodity is also dependent on the change in the price of other related goods. A farmer, for example, can use the resources available to him to produce either pulses or food grains. With an increase in the price of pulses, it becomes more advantageous for him to raise the number of pulses that he produces. Consequently, he will shift some resources from the cultivation of food grains to the production of pulse crops. Pulses will see an increase in production, whereas food grains will see a decline in output. As a result, if the price of pulses rises, the supply of pulses will increase, and the supply of food grain will reduce at the same price. If the price of food grains rises, the supply of food grains will decrease at the same price.

• Changes in the Technology of production: An advancement in the technology of production of a commodity results in a reduction in the cost of the commodity per unit produced. At the same price, the margin of profit will increase by a certain amount. Thus, with improvements in manufacturing technology, the supply of a commodity will increase while the price remains constant. A firm that uses absolute technology for manufacturing, on the other hand, will see an increase in the cost of production per unit of the item produced. Because the margin of profit will shrink, the firm will reduce its supply at the same price while maintaining its margin of profit. This is the primary reason why businesses are attempting to adopt better manufacturing technology because it not only lowers the cost of production per unit but also enhances the overall quality of the product being manufactured.

• Taxation policy of the Government: When the government lowers the excise duty or lowers the cost of production of a commodity, the cost of production per unit of the commodity will decrease, the margin of profit will increase at the same price, and the producer of the commodity will increase the quantity of the commodity available. A situation such as this occurs when the government wishes to enhance the output of a commodity. However, in order to discourage the production of some dangerous commodities, such as cigarettes, alcoholic beverages and other such items, the government raises the rate of excise duty levied on the manufacture of such items. The cost of manufacturing per unit of the commodity increases as a result, and the supply of such goods declines as a result of this trend.

• Objectives of the firm: The objective of the firm also influences the supply of a commodity. Generally, the objective of a producer is to maximize his profits. Profits are maximised when the price is raised. Consequently, he raises the supply of a commodity at a higher price while simultaneously decreasing the supply of a commodity at a lower price. However, in order to conquer the market, the producer's primary focus may be on increasing sales rather than increasing profits. Then he keeps expanding the supply until his aim is met, and the profit is not adversely affected in any way by doing so. He has the option to raise the supply at the same price to any amount he desires.

• Expectations: When producers or suppliers anticipate that the price of their goods will rise in the future, they stockpile them in order to be able to sell them at a higher price in the future. As a result, the availability of goods will be reduced. At the same way, if they anticipate a decrease in the price of goods, they will increase the supply of commodities.

• Natural Consequences: Weather conditions, floods, droughts, pest infestations, and other factors all have an impact on the availability of goods. When these forces come into play, the supply of goods will be influenced....