Factors Affecting Supply - SS1 Economics Lesson Note
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Production Costs: The cost of producing a good or service has a significant impact on supply. When production costs increase, supply decreases, as producers are less willing to produce at the same price point. Conversely, when production costs decrease, supply increases, as producers are more willing to produce and sell at a given price.
Technology: Technological advancements can improve production efficiency, leading to an increase in supply. Improved technology can reduce the cost of production, increase output, and enhance the quality of goods and services, thus influencing the supply.
Input Prices: The price of inputs, such as labour, raw materials, and energy, can affect supply. When input prices increase, the cost of production increases, leading to a decrease in supply. When input prices decrease, supply increases, as the cost of production decreases.
Natural Disasters: Natural disasters, such as floods, earthquakes, and hurricanes, can disrupt production and supply chains. In such events, the supply of goods and services is often reduced, leading to higher prices.
Government Policies: Government policies, such as taxes, subsidies, and regulations, can impact supply. For example, subsidies to producers can lower their production costs, leading to an increase in supply. Taxes on production or imports can increase the cost of production, leading to a decrease in supply.