Question

Identify three factors that determine supply in the market place and discuss how an increase and decrease in that factor will impact supply.

Answer 1

Factors that determines supply are:

• Price of the good: An increase in the price of the good will cause supply to rise as producers try to raise their profits by raising sales when prices rises.
• Technological Improvement: If there is rise in technological advancement, producers would be able to produce goods in lesser time with less resources required. Thus more goods can be produced with more technology.
• Factors of production: If factors of production cost rises, overall production cost would rise for producer which would reduce the profit of the firm and reduces the output level in the market.