Question

28.
Define Market supply. Explain any five factors that affect
the supply of commodity.

Answer 1

Answer:

According to J. L. Hanson – “By supply is meant that amount that will come into the market over a range of prices.”

Supply and Stock Relationship:

Supply and stock are related to each other in distinct terms:

1. Stock is the Determinant of Supply:

Supply is what the seller is able and willing to offer for sale. The ability of a seller to supply a commodity depends on the stock available with him. Thus, stock is the determinant of supply. Supply is the amount of stock offered for sale at a given price. Therefore, stock is the basis of supply. Without stock supply is not possible.

2. Stock Determines the Actual Supply:

Actual supply is the stock or quantity actually offered for sale by the seller at a particular price during a certain period. The limit to maximum supply, at a time, is set by the given stock. Actual supply may be a part of the stock or the entire stock at the most. Thus, the stock can exceed supply but supply cannot exceed the given stock at a time.

3. Stock can be said as the Outcome of Production:

It is very common to understand that by increasing production as well as the potential supply, the stock can be increased. Sometimes, an increase in the actual supply can exceed the increase in current stock, when along with the fresh stock, old accumulated stock is also released for sale at the prevailing price.

In this way, supply can exceed the current stock, but it can never exceed the total stock (old + new stock taken together) during a given period.

Factors Affecting Supply:

There are a number of factors influencing the supply of a commodity. They are known as the determinants of supply.

Important factors are as follows:

1. Price of the Commodity:

Price is the most important factor influencing the supply of a commodity. More is supplied at a lower price and less is supplied at a higher price.

2. Seller’s Expectations about the Future Price:

Seller’s expectations about the future price affect the supply. If a seller expects the price to rise in the future, he will with­hold his stock at present and so there will be less supply now. Besides change in price, change in the supply may be in the form of increase or decrease in supply.

3. Nature of Goods:

The supply of every perishable goods is perfectly inelastic in a market period because the entire stock of such goods must be disposed of within a very short period, whatsoever may be the price. If not, they might get rotten. Further, if the stock of goods can be easily stored its supply would be relatively elastic and vice-versa.

4. Natural Conditions:

The supply of some commodities, such as agricultural products depends on the natural environment or climatic conditions like—rainfall, temperature etc. A change in the natural conditions will cause a change in the supply.

5. Transport Conditions:

Difficulties in transport may cause a temporary decrease in supply as goods cannot be brought in time to the market place. So even at the rising prices, quantity supplied cannot be increased.

6. Cost of Production:

If there is a rise in the cost of production of a commodity, its supply will tend to decrease. Similarly, with the rise in cost of production the supply curve tends to shift downward. Conversely, a fall in the cost of production tends to decrease the supply.

7. The State of Technology:

The supply of a commodity depends upon the methods of production. Advance in technology and science are the most powerful forces influencing productivity of the factors of production. Most of the inventions and innovations in chemistry, electronics, atomic energy etc. have greatly contributed to increased supplies of commodities at lower costs.

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