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Factors Affecting Supply


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Economic Definitions

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Factors Affecting Supply

  1. 1. Factors Affecting Supply How do Producers and Speculation affect Supply?
  2. 2. Factors beyond Price  Changes in the Supply of goods and services can, and are, influenced by factors outside of the control of individual Producers.  Each Producer of a good sets individual production levels that then affect the market as a whole.  The market itself can affect supply by changing price expectations. For example, the higher the price of a good, the more of it that will be produced.  These price expectations can lead to what is referred to as Speculation. Speculation is the holding, or purchasing, of a good with the expectation that the price will increase in the future.
  3. 3. Producer Factors of Supply  A very simple factor determining the supply of a good is the number of producers of that good.  If the supply of a good is low and the price of a good is high, move producers will begin to make that good.  Even if supply of a good is high, high prices for the good will still entice more producers to shift to that good.
  4. 4. Speculation and Supply  If Producers feel that the value of their good will be higher in the future, they have the option of holding onto their good until then.  This lowers the supply of the good in the short- term on the speculative view of higher prices in the future.  On the flip side of this, if prices are expected to go down, producers will sell as many goods as they can, thus increasing supply, in order to maximize their profits.
  5. 5. Examples  Producer Influenced  New Producers entering the Market  Changes in Producer’s Goods  Producer Growth in Scale  Speculation  Farmers waiting to sell crops  Factories stockpiling inventory  Store sales