Question

Briefly explain any three factors that affect supply of a commodity.

Answer 1

Factors affecting the supply of a commodity:

1. Price of the Commodity: The price is the primary factor influencing a commodity's supply of the product. If all else stays the same, a commodity will be supplied in greater quantities at a higher price and in smaller quantities at a lower price. A commodity with a higher price will yield a higher profit at a given cost per unit. Consequently, increased earnings would spur producers to increase output and sales.
2. Input Prices: The price of the components or inputs needed for production affects a commodity's supply as well. Given the pricing of a commodity, corporations would produce less and offer it for sale at a given price level if input costs rise. Conversely, if input costs decrease, the producer's profit margin will increase.
3. Policy of Taxation and Subsidies: When a commodity is subject to high taxes, its cost of manufacturing rises, which means that it will typically cause the supply to decline, and vice versa. Another factor influencing a commodity's supply is subsidies. To encourage the companies to create specific commodities, the government provides subsidies. Subsidies encourage producers to increase supply since they lower the cost of production.