Supply of a commodity is affected by following factors: (Any two)
(a) Price of factor Inputs: When price of factor inputs increases, the cost of production also increases. This decreases the profitability. As a result, seller reduces the supply of the commodity. On the other hand, decrease in prices of factor inputs, increases the supply due to fall in cost of production and subsequent rise in profit margin.
(b) State of Technolgy: Advanced and improved technology reduces the cost of production, which raises the profit margin. It induces the seller to increase the supply. However, technological degradation or complex and outdated technology will increase the cost of production and it will lead to decrease in supply.
(c) Government Taxation Policy: If government increases taxes, it will affect the cost of production adversely and hence supply decreases. But if Government decreases the tax, the cost of production will fall and the producer will be induced to increase the supply of the commodity.
