Question

Q6 - List four shift factors of supply and explain how each affects supply.

Answer 1

Ans:

Following are four factors of supply :

1.Technology : With the invention of new production technology quantity of production increases, there is also improvement in quality standard in production of output. Hence, supply increases with the introduction and implementation of new technology.
2.Change in taxes : Tax is also an important consideration of supply. When the taxes of the producers increases, their production of output decreases so supply will also decrease and when tax rate decreases , production will increase and supply also increase.
3.Future Expectations : When the producers expects the prices of product to increase in future they reduce their current supply for earning large profit in future but if they expect prices will decrease in future they increase their current supply for avoiding future loss of price reduction.
4.Input prices : When the prices of input rises, production costs will increase so quantity of production becomes less and suppy will also less, but if the input prices decrease production and supply both will increase.