Question

Discuss four factors which determine decrease in supply phenomenon.

Answer 1

Four factors causing decrease in supply:

1. Change in Input Prices: If input prices rise, the profit from manufacturing that product falls due to increased production costs. As a result, producers will create and sell fewer units of X at the same price, leading to a decline in supplies.
2. Changes in Technology: The technology being used determines what and how much is produced at any given time. A decline in production technology will increase the average cost of production and diminish a company's profit. As a result, manufacturers will supply fewer units at the same price, leading to a decline in supplies.
3. Changes in the Firm's Goals: A firm's main goal is to maximise its profits. However, different firms may also have other goals. For example, some firms may want to avert risk and follow safer lines of activity, although these lines promise lower probable profits. In this case, at each price level, they may produce less than before, causing the supply to decrease.
4. Changes in the number of firms: If the number of firms supplying similar products increases in the market, then the share of each firm in the market supply may fall at each price level. In that case, the individual supply curve would shift leftward.