Unlike price, non-price determinants of supply do not cause a movement along the supply curve. Instead, they cause the supply curve to shift to the right or left.
Non Price Determinants of Supply: Input prices
Input prices significantly influence the supply of a particular good or service. That’s because input prices directly impact the company’s cost, which then dictates how much profit a firm makes.
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When the price of input rises, the cost for a company producing a good also rises. This, in turn, causes the company’s profitability to drop, pushing it to decrease the supply.
On the other hand, when the price of an input used during the production process declines, the firm’s cost also declines. The profitability of the firm increases, encouraging it to increase its supply.
Non Price Determinants of Supply: Technology
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Technology is another important factor that determines the supply of a good or service. That’s because technology has a direct impact on the cost that the firm faces while turning inputs into outputs.
When a company employs technology that makes the production process more efficient, manufacturers can boost their productivity while decreasing the amount of money they spend on labor. This then contributes to an increase in supply.
Non Price Determinants of Supply: Future expectations
The expectations that companies have about the price of a good in the future have an impact on their present supply of goods or services.
On the other hand, if a company expects prices to decline, it would increase the supply and try to sell as much as possible at the current price.
- Notice the important role of expectations. Although the price might not increase in the future, when companies expect it to happen, they decrease their current supply. Lower supply means higher prices, and the price indeed increases.
Non Price Determinants of Supply: Number of Sellers
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The number of sellers in a market impacts the supply of a good or service. That’s because when you have more sellers in the market, the supply of that good will be larger.
On the other hand, markets with fewer sellers do not have an ample supply of goods.
Determinants of Supply Examples
Determinants of supply examples include any change in the supply of a good or service due to changes in input prices, technology, number of sellers, or future expectations.
Determinants of Price Elasticity of Supply
Before we dive into the determinants of price elasticity of supply, let’s consider the meaning of price elasticity of supply. Price elasticity of supply is used to measure the change in the quantity supplied when there is a change in the price of a particular good.
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