EEFA - DETERMINANT OF SUPPLY - FINAL YEAR CS/IT - SRI SAIRAM INSTITUTE OF TECHNOLOGY - DR,K,BARANIDHARAN

1. Dr.K.Baranidharan
Present by…

2. Engineering
Economics &
Financial
Accountingment
Ee&fa
218 August 2013

3. DETERMINANTS
OF SUPPLY

4.  It is relevant to know the factors
which determine supply of a
product:
 1.Price of the commodity
 2.Cost of Production
 3.State of Technology
 4.Number of Firms
 5.Government Policies
Sri Sairam Institute of Technology 415.07.2013

5. 1.Price of the commodity
 The most important determinant
of supply is price,
 Supply is positively related to
price of the commodity.
 Relation between price and
quantity supplied is the basis if
Law of Supply
Sri Sairam Institute of Technology 515.07.2013

6. 2.Cost of Production
 Production requires the transformation of
various inputs and involves cost that
includes price of inputs (wages, rents,
interest, price of raw materials. etc.,)
 The cost of production rises, say due to
rise in the price of raw materials, supply
will definitely be reduced.
Sri Sairam Institute of Technology 615.07.2013

7. Example:
 A company manufactures cotton shirts
 If the price of the raw cotton rises, this will
lead to rise in the cost of production and
thereby a reduction in the supply of shirts,
unless the suppler can transfer the
increase in cost on the consumer by
increasing price
Sri Sairam Institute of Technology 715.07.2013

8. 3.State of Technology
 Technology bears a positive
relationship with supply.
 An improved technology reduces
cost of production per unit of
output, enhances productivity and
thus increase the supply of the
product.
Sri Sairam Institute of Technology 815.07.2013

9. 4.Number of Firms
 With increase in the number of
producer of a particular product,
the supply of the product in the
market will increase.
 New firms will continue to enter
the market, thus increasing
supply and degree of competition.
Sri Sairam Institute of Technology 915.07.2013

10. 5.Government Policies
 Government Policies related to taxes
and subsidies on certain products
also have been an effect on supply as
they increase or decrease the cost.
 Such effects may be either negative
(in case of taxes) or positive (in case
of subsidies.
Sri Sairam Institute of Technology 1015.07.2013

11. Dr.K.Baranidharan
THANK YOU