- There are several factors that will change the supply of a good/service, irrespective of the price level. Collectively these factors are called the non-price determinants of supply and include
- Changes to the costs of production
- Changes to indirect taxes and subsidies
- Changes to technology
- Changes to the number of firms
- Weather events
- Future price expectations
- Goods in joint and competitive supply
- Changes to any of the non-price determinants of supply shifts the entire supply curve (as opposed to a movement along the supply curve)
A graph that shows how changes to any of the non-price determinants of supply shifts the entire supply curve left or right, irrespective of the price level
You are viewing: Which Of The Following Are Non-price Determinants Of Supply
- E.g. If a firm’s cost of production increases due to the increase in price of a key resource, then there will be a decrease in supply as the firm can now only afford to produce fewer products
- This is a shift in supply from S to S1. The price remains unchanged at £7 but the supply has decreased from 10 to 2 units
An Explanation of how each of the Non-Price Determinants of Supply Shifts the Entire SupplyCurve at Every Price Level
Non-Price Determinant
Explanation
Condition
Shift
Condition
Shift
Changes to costs of production(COP)
- If the price of raw materials or other costs of production change, firms respond by changing supply
COPIncreases
S decreases, shifting left(S→S1)
COPDecreases S increases, shifting right(S→S2) Indirect taxes
- Any changes to indirect taxes change the costs of production for a firm and impact supply
Taxes Increase
S decreases, shifting left(S→S1) Taxes Decrease S increases, shifting right(S→S2) Subsidies
- Changes to producer subsidies directly impact the costs of production for the firm
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Subsidy Increases
S increases, shifting right(S→S2) Subsidy Decreases S decreases, shifting left(S→S1) New technology
- New technology increases productivity and lowers costs of production
- Ageing technology can have the opposite effect
Technology Increases
S increases, shifting right(S→S2)
Technology Decreases
S decreases, shifting left(S→S1)) Change in the number of firms in the industry
- The entry and exit of firms into the market has a direct impact on the supply
- E.g. If ten new firms start selling building materials in Hanoi, the supply of building material will increase
No. of Firms Increases
S increases, shifting right(S→S2)
No. of Firms Decreases
S decreases, shifting left(S→S1) Weather events
- Droughts or flooding can cause a supply shock in agricultural markets
- A drought will cause supply to decrease. Unexpectedly good growing conditions can cause supply to increase
Drought
S decreases, shifting left(S→S1)
Good Weather
S increases, shifting right(S→S2)
Future price expectations
- If firms expects the price of a good/service to increase in the future, they will start supplying more
- If firms expects the price of a good/service to decrease in the future, they will start supplying less
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Expectations price will rise
S IncreasesShifts Right(S→S2)
Expectations price will fall
S DecreasesShifts Left(S→S1)
Goods in joint supply
- When there is an increase of supply of one good in joint supply (e.g. beef), possibly due to higher prices, there will be an increase in supply of the other good too (e.g. leather)
Supply of one good rises
S good A Increases
Shifts Right(S→S2)
Supply of the other good rises
S good B IncreasesShifts Right(S→S2)
Goods in competitive supply
- Farmers can produce many goods which are competitive in supply
- E.g. A farmer can grow wheat or potatoes. When they increase the supply of potatoes, the supply of wheat decreases
Supply of one good rises
S good A Increases
Shifts Right(S→S2)
Supply of the other good falls
S DecreasesShifts Left(S→S1)
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