Explain the effect of the following on the supply of a commodity: (a) Fall in the prices of factor inputs (b) Rise in the prices of other commodities.

Explain the effect of the following on the supply of a commodity: (a)

1.	Explain the effect of the following on the supply of a commodity: (a) Fall in the prices of factor inputs (b) Rise in the prices of other commodities.
Answer» 1. Fall in prices of factors of production-When the amount payable to factors of production and cost of inputs increases, the cost of production also increases. This decreases the profitability. As a result, seller reduces the supply of the commodity. On the other hand, decrease in prices of factors of production or inputs, increases the supply due to fall in cost of production and subsequent rise in profit margin.2. Prices of Other Goods:As resources have alternative uses, the quantity supplied of a commodity depends not only on its price, but also on the prices of other commodities. Increase in the prices of other goods makes them more profitable in comparison to the given commodity. As a result, the firm shifts its limited resources from production of the given commodity to production of other goods.