Question

List the determinants that shift the supply curve.?

Answer 1

When price changes, quantity supplied will change. That is a movement along the same supply curve. When factors other than price changes, supply curve will shift. Here are some determinants of the supply curve

• Since most private companies’ goal is profit maximization. Higher production cost will lower profit, thus hinder supply. Factors affecting production cost are: input prices, wage rate, government regulation and taxes, etc.
• Improvements in technology can reduce the need for factors of production in supplying a product. For instance, robotics have greatly reduced the need for labor. More fuel-efficient aircraft allows airlines to sell seats for less, thereby increasing demand. Technology can also reduce distribution or marketing costs. Technological improvements help reduce production cost and increase profit, thus stimulate higher supply.
• The number of sellers will have an effect on the market supply, since the market supply is simply the sum of the supply of each individual seller — more sellers entering the market increases supplies while departing sellers decreases supply.
• If producers expect future price to be higher, they will try to hold on to their inventories and offer the products to the buyers in the future, thus they can capture the higher price. Expected prices can also change the present supply, because if suppliers believe that prices will decline in the near future, they may try to sell all that they have presently. Likewise, if prices are expected to rise in the future, then suppliers may hold onto their supply until prices rise. After all, this is why people hold stock in companies, because they expect stock prices to rise. When they believe that the stock has reached the maximum price, then the expectation is that the prices thenceforth will decline, so they sell their stock to lock in their profit.