Factors That Affect The Supply Of A Product

Factors That Affect The Supply Of A Product

Most people would assume that the price of a product is the only thing that affects the supply and quantity created.
Companies can make more money off of a product the higher the product is priced – this is true. However, there are other factors the influence the supply. These factors are called the determinants of supply and include the number of sellers who exist in the market, the cost of the resources needed to produce the offering, the technology involved, taxes that are incurred and the prices of other substitute products or competitors offerings. Essentially, anything that increases the cost to produce the offering, will affect the supply of it as well.
If there are a large number of suppliers who exist within the market, there is more market supply. This means that more products will be available and easily accessible. The cost of resources include all materials needed to create the product. As the prices of these resource increase, less of the income from the product goes to profit. This leads to a decrease in supply in order to save money. However, if resource prices drop and more output can be created at a better price, there will be an increase in supply. Technology is a valuable asset to a business because it allows for less physical resources to be used and in turn saves companies a lot of money.
Taxes that are set in place are another factor that affect the supply of a product. These fees that are incurred by companies are still ultimately seen as costs such as property tax and sales tax. The only way taxes would increase the supply of a product is if the government chooses to subsidize them which lowers the cost for the producer. This would lead to a greater supply.
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