Factors Affecting Supply (Determinant of Supply)

1. Price of Related Goods 

The supply of a product can be influenced by the price of related goods:

A) Substitute goods

B) Complementary goods

A) Substitute Goods

Supply of a product will decrease if there is an increase in the price of a substitute product, for example Maxis and Celcom.

When the price of Maxis increase, the quantity supplied will increase (law of supply) and the quantity supply of Celcom will be decrease. So, if price of substitute goods increase, supply curve for current goods will shift to the left.

Pmaxis ↑, Qs maxis↑ → SScelcom ↓

B) Complementary Goods

An increase in the price of a product will increase the supply of a complementary product. For example, Petrol and Car.

When the price of Car increases, the quantity of car supplied will increase and the supply on petrol will also increase since both are complementary goods. So, if the price of complementary goods increases, supply curve will shift to the right.

PCar ↑, Qs Car↑ → SSpetrol ↑

2. Cost of Production

When the cost of production increase (price of production factor increase), quantity supplied will be decrease and vice versa. For example, an increase in wages of labor and price of capital equipment in production process will increase the cost of production and thus reduce the supply curve. So, cost of production increase, will shift the supply curve to the left. 

4. Expected Future Price

If the seller was expecting the price will increase in following month, the current quantities supplied will be decrease and vice versa. For example, when the government announces an increase in the price of sugar, the current supply will decrease because the supplier wants to gain a higher profit with a higher new price.

Pe ↑ → Qs now ↓ → SS shift to left

5. Technological Advance

Changes in technology are the most important influences on supply. Existence of the new technology will reduce cost of production. So, the seller can increase their production. For example, when new technology was introduced in paddy harvesting, the supply of rice will be increased. So, the technology advance will shift the supply curve to the right.

6. Number of Sellers

The large number of firms supplying a product, the large quantity supplied of the product and vice versa. For example, if there is an increase in the number of cafeterias in a KPMBP, the supply of foods and drink will increase. So, if number of seller increase, supply curve will shift to the right and vice versa.