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INTRODUCTION TO INDIAN ECONOMY 1.8 VARIABLES AFFECTING SUPPLY CURVE PRESENTED BY AYUSSH SANGHI
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VARIABLES AFFECTING SUPPLY CURVE We understood about the shift in supply curve Through this lesson we will understand the important variables that shift the supply curve are as follows, just as we understood shift in demand curve.
VARIABLES AFFECTING SUPPLY CURVE Input Prices o In order to produce the output of a Cake, bakers use various inputs: o cream, o sugar flavouring, o cake machines, the infrastructure in which the cake is made and o labour of workers to mix the ingredients and operate the machines.
VARIABLES AFFECTING SUPPLY CURVE Input Prices When the price of any of these inputs increases, producing cake is less profitable, and businesses supply less cake. o And if input prices rise substantially, a firm might shut down and supply no cake at all. Thus, the supply of a good is negatively related to the price of the inputs used to make and supply the good.
VARIABLES AFFECTING SUPPLY CURVE Technology Technology used for turning inputs into cake is another determinant of supply. The invention of the mechanised cake making process machine entailed a cost. o Example: Mechanisation reduced the amount of labour necessary to make cakes. By reducing firms' cost in terms of mechanisation or the advancement in technology raised the supply of cakes. Hence Technology would also affect supply.
VARIABLES AFFECTING SUPPLY CURVE Expectation Amount of cakes a business supplies today may depend on its expectations of the future. o Example: During Christmas, Plum Cake is required heavily. Hence a business would expect to increase the supply due to an occassion. If a business expects the price of cake to rise in the future, it will put some of its current production into a higher price at a future date.
VARIABLES AFFECTING SUPPLY CURVE Number of Sellers o Supply in the market depends on factors that influence the supply of individual sellers, such as: influence the supplyf ndividual sellers, such as: o the price of inputs used to produce the good, the technology availabl expectations. o e o All these factors we have understood so far.
VARIABLES AFFECTING SUPPLY CURVE Number of Sellers In addition, the supply in a market also depends on the number of sellers. If producers of cake were to stop producing and retire from the cake business, the supply in the market would fall. Hence the number of sellers have a huge impact.