Other Factors Affecting Supply

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    Other Factors Affecting Supply

    • Other factors, aside from price, that affects a producer’s willingness to supply are:
      • Costs of production
      • Size and nature of the industry
      • Government policy and other factors

    Costs of Production

    • There are many things that can affect the costs of production
    • Any change in any input can have an effect on the firm’s profits and willingness to supply the market.

     

    • The most obvious is a change in the costs of the factors of production
      • For example, oil prices have been rising over the years, and this clearly impacts upon a firm’s production costs
      • How much is imports will depend upon how important these factors are for a firm’s production costs

     

    • In some types of activity, labour costs are a high proportion of total costs
    • This is true in service sector activities, such as retailing and transport
    • Therefore, an increase in labour costs has to be passed onto the consumers in the form of higher prices

     

    • In practise, it is difficult to generalise
    • Labour in plentiful supply will usually not increase in price to the same extent as labour which is specialist and in short supply
    • The extent of any change in the supply price will depend upon if a producer can be more efficient in their production process
      • An example would be replacing workers in car manufacturing with machines (capital)
    • Technological advances decrease production costs

    Size and Nature of the Industry

    • Some industries are more competitive than others
    • Where this is the case (such as grocery retailing), minor increases in costs can have a big impact on supply
    • Any cost increases in less price competitive markets can usually be passed on to consumers, with very little effect on profits

    Government Policy

    • Most product that firms supply are subject to indirect taxation such as VAT
    • Any increase in this taxation will have to be passed on to the consumer through increase prices
    • In turn, the increased prices will affect the producer’s willingness to supply

     

    • Legislation and regulations can also affect a firm’s costs
    • Health and Safety regulations invariable lead to higher production costs
    • Such regulations tend to affect all firms, so any effect on the costs of production tends to affect all firms in a fair way

     

    • In a few instances, the government is prepared to give an annual subsidy to firms
    • This is in the form of a payment to reduce costs, and hence prices
      • Examples are to farmers to keep food costs low, and to rail transport companies
    • As a result, the supply of products is increased

    Other Factors

    • The supply of products is often subject to factors that suppliers have little or no influence
      • An example is agriculture, where bad weather can destroy a whole season’s harvest
      • Another example is that when foot and mouth disease spread, it reduced the supply of pork and beef coming onto the market
      • To contrast, nutritionists claimed that pomegranate juice was very beneficial to one’s health, and as a result, the demand for pomegranate juice has increased

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