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Question
Price is the only determinant of supply.
Solution
No, I do not agree with this statement.
Reason:-
- Price is the most important determinant of supply. But we cannot say that price is the only determinant of supply. There are many other determinants of supply.
- Other than price, the other factors such as cost of production, state of technology, government policies, nature of market, prices of other goods, infrastructural facilities, exports and imports, future expectation, natural conditions, etc. also determine the supply of goods.
There are various factors that influence the supply of a commodity. The factors or determinants that influence supply are a follows:
1. Price of the commodity:- The supply of a commodity is directly related to its price. Generally, more quantity of a commodity is offered for sale at higher price, and less quantity is offered for sale at a lower price.
2. Availability of inputs:- The supply is affected by the availability of inputs for production. If there is shortage of inputs in the market, the production would be less, and therefore, the supply would be lower.
3. Cost of production:- A rise in production cost may reduce the supply in the market, especially, when higher costs are not viable (possible), and a fall in production cost may induce the producer to produce more and accordingly supply more in the market.
4. Nature of the Market:- Supply of a commodity is influenced by the nature of a market. In a highly competitive market, the supply may be higher. In a monopoly market the supply may be lower.
5. Distribution Facilities:- The supply is influenced by distributionfacilities. For instance, if there is a good network of transport and warehousing facilities, the supply can be more and vice versa.
6. Nature of Workforce:- The supply is influenced by the nature of workforce available to the producers. If the workforce is competent and dedicated, then the production would be higher.
7. Technology:- The type of technology used by producers influences the production. Modern technology not only improves the quality, but also the quantity of production.
8. Size of the Market:- The size of the market greatly influences the supply. Larger the size of the market, there will be more production, and more will be the supply and vice versa.
9. Future expectatio:- Expectations about the future price will affect the supply. If the price is expected to rise in the future, the producers may hold on to the stock, rather than supplying it in the market. This will reduce the supply in the market for the time being.
Note: Write any three points from above
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