Question

There are 7 factors that may cause a change in supply. List each one and give an example of how these changes impact supply.

Answer 1

The seven factors which affect the changes of supply are as follows:

(i) Natural Conditions (ii) Technical Progress (iii) Change in Factor Prices (iv) Transport Improvements (v) Calamities (vi) Monopolies (vii) Fiscal Policy.

Natural Conditions:There will be bumper crops if the rainfall is abundant, timely and well distributed. Instead, floods, droughts, or earthquakes and other natural calamities are bound to adversely affect production. This is one set of conditions that translates into a supply transition.

Technical Progress:Development in manufacturing technique also affects the amount of output or supply. That is a very important factor in manufacturing industries. A new computer may have been invented, a new method discovered or a new material discovered, or even a new use for a by-product may have been found. The discoveries of synthetic dyes, artificial rubber, and wool are some of those discoveries or technical improvements.

Change in Factor Prices:A change in the prices of the output factors often triggers a change in the commodity supply. If the output factors get cheap, the supply will increase, and vice versa.

Transport Improvements:Improving the means of transport lowers the cost and increases the product supply. Thus supply conditions change.

Calamities:Calamities such as war or drought do have to impact consumer supplies. We are only too familiar with the lack of goods caused by the war and by famine dislocating production. But sufficient supplies are not arriving at low costs.

Monopolies:The monopolists will intentionally increase or decrease supply as they see fit. And the practice of monopolistic control leads to a supply change.

Fiscal Policy:The Government's fiscal policy can also affect the supply. For example, a higher import duty would limit supply, and it will be stimulated by a lower duty. Those are some of the factors that bring in and increase or decrease changes in the supply conditions.