Determinants of supply
Also called: Factors affecting supply · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 9, Ch 9 "The Price Puzzle: What Drives the Market"; Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"; Class 12, Ch 5 "Market Equilibrium"
Meaning
Determinants of supply are the factors, other than the good's own price, that change how much producers offer at each price. A firm's supply curve is part of its marginal cost (MC) curve. So any factor that moves MC shifts supply. These factors include technology, input prices, and unit taxes or subsidies. Other determinants are the prices of related goods in production and producers' expectations. Market supply also depends on the number of firms.
Example
Suppose drip irrigation cuts water use by 40% and raises yield by 30%. The cost per unit falls, so the farmer supplies more at every price, and supply shifts right. Here is a second example. If chickpea prices are high and wheat prices are low, farmers grow more chickpeas next season, so wheat supply falls.
Don't confuse with
- Own price of the good: a change in its own price causes a movement along the supply curve (extension or contraction). It does not shift the curve.