Supply, Demand and Equilibrium
Non-Price Factors of Supply
Non-price Factors of Supply
There are four non-price factors of supply that can influence the willingness of suppliers to produce goods. The cost of production, expected future prices, number of suppliers and technology.
Cost of Production
When land, labour and capital costs are large, then the cost of producing goods increases also. This means that suppliers will reduce their level of supply (output) as the cost to make the goods has risen.
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Expected Future Prices
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The expectations of businesses regarding the price of goods will affect how much they supply. For instance, if firms expect to receive higher prices for their goods next week, then they will reduce supply now and increase it in the next week in order to receive a greater profit. The opposite will occur if they expect prices to decrease in the future, suppliers will increase output before prices fall.
Furthermore, future prices of goods may affect a businesses level of capital investment such as new tools, technology or machinery. For example, if there was an expected increase in iron ore prices, mines will begin to increase their search for deposits and machinery required.
Number of Suppliers
If there is a large number of businesses and sellers within a market, then the level of output and supply will increase. The opposite is true if there is limited competition within a market due to possible low profit oppurtunities for firms or anti-competative behaviour, this results in less sellers and therefore, a lower quantity of supplied goods.
Technology is seen as more efficient, therefore allowing producers to increase their output and cut labour costs. An increase in the level of technology or capital machinery used within a business means that the quantity supplied will increase. However, if the quality of machinery is outdated, output levels will be low and therefore, quantity supplied will also be limited.