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Question
Explain any three factors other than price which determine supply in the market.
Answer in Brief
Solution
- Prices of inputs: If the prices of inputs rise, the cost of production will rise and as a result, the supply of the commodity falls. On the other hand, if the prices of inputs fall, the cost of production declines and as a result, the supply of the commodity increases.
- State of technology: As a result, profits tend to increase. This leads to an increase in supply.
- Change in tax rates: An increase in the rate of tax on production increases the unit cost of production and consequently the supply decreases. On the other hand, if the tax rate on production is reduced, the cost of production is also reduced and as a result, supply increases.
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Factors Affecting Supply (Or Determinants of Supply)
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Chapter 4: Theory of Supply - Exercise [Page 100]
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