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You are expected to explain/analyze (AO2) the non-price determinants of supply (SL+HL)
The non-price determinants of supply are all the factors that affect supply of a good or service, except for price.
- Changes in costs of factors of production
If the costs of producing a good increase, firms will produce less of it. Likewise, is costs decrease, more will be produced
- Prices of related goods
Joint Supply: This refers to when the production of one good automatically aids the production of another good. For example, if you are a farmer breeding chickens so you can sell chicken breast, chances are you will also produce eggs in the process
Competitive Supply: This refers to when the production of one good competes with the production of another good. For example, if you are a fruit farmer, you can either have apple trees or orange trees. They compete against each other: The more apple trees you have, the less orange trees you can have
3. Indirect taxes and subsidies
3. Indirect taxes and subsidies
Indirect taxes are taxes on consumption rather than income. They increase the cost of producing products, and will therefore shift supply to the left (reduces supply)
Subsidies is government financial assistance that reduce the costs of production. This will therefore shift supply to the right (increases supply)
You will learn more about taxes and subsidies later in the microeconomics syllabus, so don't worry if it's a little confusing
4. Future price expectations
4. Future price expectations
If firms expect the price to increase in the future, they will increase production, which will increase supply. This shifts the supply curve to the right (increases supply)
5. Changes in technology
5. Changes in technology
If improvements in technology result in the production of goods being more efficient, firms will be willing to supply more than before. This shifts the supply curve to the right (increases supply)
6. Number of firms
6. Number of firms
If the number of firms in a market increases, the total market supply increases
If the number of firms in a market decreases, the total market supply decreases
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