Factors influencing the supply of a commodity, Managerial Economics

Factors influencing the supply of a commodity

a)         Own Price of the commodity

There is a direct relationship between quantity supplied and the price so that the higher the price, the more people shall bring forth to the market.  Mathematically this can be illustrated as follows:

Qs = -c + dp

Where:  Qs is the quantity supplied

-c is a constant

d is the factor by which price changes

P is the price

Thus the normal supply curve slopes upwards from left to right as follows:

1106_supply curve.png

The reason why a greater quantity is supplied at a higher price is because, as the price increases, organisations which could not produce profitably at the lower price would find it possible to do so at a higher price.  One way of looking at his is that as price goes up, less and less efficient firms are brought into the industry.

Posted Date: 11/27/2012 5:57:57 AM | Location : United States







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