1.

Explain how the following factors affect the supply of a commodity : (i) State of technology.(ii) Price of factors of production.(iii) Goals of the firm.(iv) Future price expectations.

Answer»

(i) State of Technology : State of technology increases the supply of commodity because technology improvement reduces the cost and raises the profit of the producers. 

(ii) Price of Factors of production : increase or decrease of supply of commodity dependents largely on increase or decrease of price of factors. if prices of factors increases the cost of product is increases leads to discourages the suppliers to increase the supply. And if prices of factors decrease, the finished product becomes cheaper and margin of profit increases results in increase of supply of commodity. 

(iii) Goals of the firm : it is often assumed that firms operate with a view to maximize their profits. But now days it is based on the principle that when the sales are increased, the ultimate profits also increase. Sometimes firms wish to capture extensive markets for their products so as to maximize their sales. Ultimately increases the supply of commodity. 

(iv) Future Price Expectations : Seller’s expectations about the future price affect the supply. If a seller expects the price to rise in the future, he will withhold his stock at present and so there will be less supply now. Besides change in price, change in the supply may be in the form of increase or decrease in supply.



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