Determinants of supply
Innumerable factors and circumstances could affect a seller’s willingness or ability to produce and sell a good. Some of the more common factors are:
1. Cost factor of production
Cost of production depends on the factors like
Price of raw materials
Rents and interest on capital
Cost of machinery
Payments to human resources (wages and salaries)
Transportation charges (logistics)
If cost of production of commodities is high, in general supply of commodities in to the markets will be low.
2. Price of the Commodity:
Since higher money income is necessary to induce producers to produce more, the amount supplied therefore increases when producers get higher price for the product.
3. Price of Other Goods:
Change in the price of other goods in the market also has influence on the supply of the commodity. For Example: if the price of good Y rises, the producer of good X will start considering switching his production to good Y as it has become relatively more attractive to produce Y now then before.
4. Producer’s Objective:
The producers may have many objectives like profit maximization, sales revenue maximization, goodwill etc. Amount supplied of a commodity is often influenced by the producer’s objective. A goodwill maximiser will sell more commodities than the profit maximiser.
5. State of technology
Use of latest technology decreases the cost of production and increases the production capacity which increases supply of goods.
6. Factors outside the economic sphere
Supply depends upon the below said factors. These factors should not arise if they arise; they affect the supply directly or indirectly.
Epidemics (unexpected situations)
4. Tax and subsidy
If tax subsidy (charge less tax) is given by the government the production cost decreased. If that is not there production cost raises. Finally the production will be low and effects to decrease in supply.
DETERMINANTS OF SUPPLY OF COCA COLA:
As stated in the law of supply, the price is positively related with quantity supplied for coca cola, in short run if there is an increase in the price of coca cola, the producers will be willing to produce more of the product.
STATE OF TECHNOLOGY:
Due to change in the state of technology in the production process, the cost of production will reduce; as a result supplier will be able to supply more at same price
NUMBER OF CONSUMER:
In the case of coca cola there are large number of consumer, as a result the supplier are willing to supply more to cater the needs for the large number of customer.
PRICE OF INPUTS:
Includes labour cost, machinery etc. if there is no scarcity in the supply of these factors so the cost for these factors will reduce as a result the producer is willing to supply more products at same price.