Other Factors Affecting Supply

Other Factors Affecting Supply

  • Other factors, aside from price, that affects a producer’s willingness to supply are:
    • Costs of production
    • Size and nature of the industry
    • Government policy and other factors

Costs of Production

  • There are many things that can affect the costs of production
  • Any change in any input can have an effect on the firm’s profits and willingness to supply the market.


  • The most obvious is a change in the costs of the factors of production
    • For example, oil prices have been rising over the years, and this clearly impacts upon a firm’s production costs
    • How much is imports will depend upon how important these factors are for a firm’s production costs


  • In some types of activity, labour costs are a high proportion of total costs
  • This is true in service sector activities, such as retailing and transport
  • Therefore, an increase in labour costs has to be passed onto the consumers in the form of higher prices


  • In practise, it is difficult to generalise
  • Labour in plentiful supply will usually not increase in price to the same extent as labour which is specialist and in short supply
  • The extent of any change in the supply price will depend upon if a producer can be more efficient in their production process
    • An example would be replacing workers in car manufacturing with machines (capital)
  • Technological advances decrease production costs

Size and Nature of the Industry

  • Some industries are more competitive than others
  • Where this is the case (such as grocery retailing), minor increases in costs can have a big impact on supply
  • Any cost increases in less price competitive markets can usually be passed on to consumers, with very little effect on profits

Government Policy

  • Most product that firms supply are subject to indirect taxation such as VAT
  • Any increase in this taxation will have to be passed on to the consumer through increase prices
  • In turn, the increased prices will affect the producer’s willingness to supply


  • Legislation and regulations can also affect a firm’s costs
  • Health and Safety regulations invariable lead to higher production costs
  • Such regulations tend to affect all firms, so any effect on the costs of production tends to affect all firms in a fair way


  • In a few instances, the government is prepared to give an annual subsidy to firms
  • This is in the form of a payment to reduce costs, and hence prices
    • Examples are to farmers to keep food costs low, and to rail transport companies
  • As a result, the supply of products is increased

Other Factors

  • The supply of products is often subject to factors that suppliers have little or no influence
    • An example is agriculture, where bad weather can destroy a whole season’s harvest
    • Another example is that when foot and mouth disease spread, it reduced the supply of pork and beef coming onto the market
    • To contrast, nutritionists claimed that pomegranate juice was very beneficial to one’s health, and as a result, the demand for pomegranate juice has increased