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Question
What are the causes of decrease in supply of goods and services?
Solution
Causes of decrease in supply of goods and services:
i. Poor performance of farm sector: If agricultural production, especially food grain production, is very low, it could lead to shortage of food grains, leading to inflation.
ii. Industrial dispute: In countries where trade unions are powerful, they may curtail the production level. Trade unions resort to strikes, and if these are unreasonable from the employers’ point of view and prolonged, they force the employers to declare lock-outs. In both cases, the industrial production falls
and thereby decreases the supply of goods and services. If the unions succeed in increasing money wages of their members to a very high level, then the
productivity of labour and supply of goods and services change. This also tends to reduce the production and supply of goods.
iii. Natural calamities: Drought or flood is a factor which adversely affects the supplies of agricultural products. In turn, they create shortages of food products and raw materials, thereby creating inflationary pressures.
iv. Artificial scarcities: Artificial scarcities are created by hoarders and speculators who indulge in black marketing. Thus, they are instrumental in creating a shortage of supply of goods and services to raise their prices.
v. Other reasons are capital bottlenecks, entrepreneurial bottlenecks, infrastructural bottlenecks and foreign exchange bottlenecks
