Question

Explain four factors on which the supply of a commodity depends.

Explain any four factors that determine the supply of a commodity

Answer 1

1. Price of the Commodity: Price of a commodity is the most important determinant of its supply. Higher the price, the larger will be the supply. As the price rises, the producer in the expectation of earning larger profit will increase the supply of the commodity and vice versa. This type of relationship between price and supply has been illustrated by the law of supply.
2. Goals of the Firms: The supply of a commodity also depends upon the goals of firms. Their goals may be profit maximisation or sales maximisation. If their goal is to maximise profits, more quantity will be supplied at a high price. But if the firms want to maximise their sales (as they think that increased supply is a source of status and prestige in the market), more quantity will be supplied even at the same price. Thus, change in the goals of the producers also influences the supply.
3. Price of Related Goods: Related goods can be alternatives or items supplied jointly. If the price of alternatives increases, so should their supply.
4. Number of Firms: A commodity's market supply is also determined by the number of enterprises in the market. An increase in the number of firms results in an increase in market supply, and vice versa.