Theory question 104
Theory of SupplySection B
Discuss the factors that should motivate a producer to supply more of a commodity.
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Model answer
Factors that make a producer supply more:
1. A rise in the price of the commodity.
2. A fall in the cost of factors of production (raw materials, wages).
3. Improved technology that lowers cost.
4. A fall in the price of other goods the factors could produce (making this good relatively more profitable), or a rise in price of jointly supplied goods.
5. Government subsidies or lower taxes.
6. Favourable weather (for farm produce).
7. Expectation of lower future prices (sell more now).
8. Aim of the firm (e.g. maximising sales/market share), entry of new firms, improved transport and peace/stability.
Explanation
Explain each factor briefly.