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10 Factors Affecting Supply of a Product

  • Ayush Singh Rawat
  • Dec 04, 2021
10 Factors Affecting Supply of a Product title banner

The quantity of an item that a producer intends to sell in the market is referred to as supply. 

 

Price, the number of suppliers, the state of technology, government subsidies, weather conditions, and the availability of employees, and many more, all can influence supply.

 

Supply Management

 

The capacity to investigate, procure, and maintain the resources required to run a firm efficiently is referred to as supply management. It considers the management of any raw material suppliers, as well as the purchase and maintenance of items or machines used to make products. 

 

To be effective at supply management, a company must first understand its audience, marketplace, and industry trends in order to know whether to purchase additional stock, allow longer time for raw material delivery, or replace machinery that has depreciated beyond repair.

 

Supply is a fundamental notion in economics that represents the entire quantity of a certain commodity or service accessible to consumers. 

 

When customers indicate an interest in buying a product or service, the existing supply is depleted, resulting in a rise in demand.

 

(Suggested reading: Supply chain management)

 

A Supply Curve

 

The supply curve is a graph that shows the relationship between the cost of a commodity or service and the amount delivered over time. 

 

The supply curve will travel higher from left to right, as indicated by the law of supply, which states that as the price of an item rises, so does the amount provided (all else being equal). 

 

When the price of goods and services falls, so does the supply of products and services.


Supply curve

Supply curve, source


Factors impacting supply

 

The following are some of the elements that impact a product's supply:


The image is depicting the major factors that can influence the supply of a product.

Factors impacting the supply


  1. Cost:

 

Price may be defined as the amount a customer is willing to pay for a product or service. This is the most important aspect that determines a product's supply. 

 

According to the law of supply, when the price of a commodity rises, so does its supply, and vice versa. This is referred to as the price fluctuation. 

 

If there is any assumption that the price of the product will rise, supply in the current market would often decrease in order to obtain greater profit in the future. That also means that if the price is predicted to fall, the supply in the present market would likely grow dramatically.

 

Aside from that, the price of alternatives and complementary commodities may have an impact on a product's supply. 

 

If the price of wheat rises, for example, farmers will cultivate more wheat rather than rice. This might reduce the amount of rice available on the market. Overall, pricing is the most important element affecting a product's availability. (Here)

 

 

  1. Cost of Production:

 

The cost of manufacturing and the supply of a commodity are diametrically opposed. If the cost of production rises, corporations will reduce their product supply in order to save money. 

 

For example, the cost of manufacturing has increased owing to high labour wages, adverse natural circumstances such as crop failure, as well as increases in raw material prices, taxes, transportation costs, and so on. 

 

In this instance, the company's managers would either offer a reduced quantity of goods to the market or keep the commodity on hand until the market price is surpassed.

 

 

  1. Natural Conditions:

 

It implies that weather conditions have a direct impact on the availability of particular goods. When the monsoon arrives on schedule, for example, the quantity of agricultural goods increases. 

 

During droughts, however, the availability of these goods declines. Some crops are climate-sensitive, and their growth is solely dependent on weather conditions. 

 

Kharif crops, for example, are best cultivated in the summer, whereas Rabi crops are best grown in the winter.

 

 

  1. Technological advancements:

 

One of the most critical supply factors. A better and more modern technology enhances a product's production, resulting in an increase in the product's supply. 

 

The manufacturing of fertilisers and high-quality seeds, for example, boosts agricultural productivity. This boosts the market's supply of food grains even further.

 

 

  1. Transport Conditions:

 

Refer to the fact that improved transportation infrastructure boosts product supply. Transport is always a stumbling block to product supply, since items are not delivered on time owing to insufficient transportation infrastructure. As a result, even if the price of a product rises, the supply does not.

 

In India, vendors often employ road transport, which is difficult to arrive on time due to poor road maintenance. Products that are created in one section of the city must be distributed throughout the country by road transport. 

 

This may cause the majority of the items to be damaged throughout the travel, resulting in a significant loss for the vendor. Furthermore, due to the delay in product delivery, the vendor may lose consumers.

 

(Similar reading: Factors Affecting the Price Elasticity of Demand)

 

 

  1. Factor Prices and their Availability:

 

One of the most important factors of supply. Factors are the inputs necessary at the moment of manufacturing, such as raw materials, labour, equipment, and machineries. 

 

There would be an increase in output if the factors were accessible in adequate quantity and at a reduced price. This would boost a product's supply on the market. 

 

For example, having access to low-cost labour and raw materials near a company's production site may assist cut labour and transportation expenses. As a result, the product's production and supply would grow.

 

 

  1. Government Taxation Policy:

 

Changes in taxation have an inverse effect on the supply of a product. The profit margin of the product narrows when the government raises taxes. As a result, the producer's supply is reduced. 

 

Tax breaks and subsidies, on the other hand, are commonly utilised by the government to enhance the supply of specific items by ensuring a higher profit margin for the providers.

 

 

  1. Related Goods Prices:

 

The reality that the pricing of replacements and complementary items have an impact on a product's supply. 

 

If the price of wheat rises, for example, farmers will cultivate more wheat than is required. This would reduce the amount of rice available on the market.

 

 

  1. Calamities:

 

Natural disasters such as war or starvation must have an impact on the supply of products. 

 

We are all too familiar with commodity shortages caused by conflict and production disruptions induced by hunger. Even at higher costs, sufficient supplies are not available.

 

 

  1. The firm's goals and objectives:

 

In general, a commodity's supply grows exclusively at higher prices because it achieves the profit maximisation goal. 

 

With the shift in the market, some companies are eager to supply more even at rates that do not maximise their earnings. The goal of such businesses is to expand their market share and improve their status and reputation.

 

(Must check: Law of Diminishing Marginal Utility)

 

To sum up our discussion, these 10 conditions prove to be huge determinants in terms of supply of a product.

 

Any one condition can disturb the supply system, so it is ideal that every business should always keep these conditions in mind and check regularly that these factors always stay updated and in sync with the ever-changing world.

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