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State with resons whether you agree or disagree with the following statements.Price is the only determinant of supply. |
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Answer» No, I do not agree with this statement. 1. Cost of Production : Changes in the price of factors of production like rent, wages, interest affects the cost of production. When cost of production increases, supply decreases. 2. Price of Other Goods : The supply of a given commodity depends on the price of other commodity. E.g. if the price of wheat rises and that of rice remains the constant, then the producer will think of producing more of wheat. This will affect the supply of rice. 3. price of the Commodity : Price is an important factor influencing the supply. More is supplied at a higher price and less at a lower price. So price and supply are 5 directly related. 4. Climatic Conditions : The supply of commodity is also influenced by the forces 5. Government Policy : Government policies like taxation, subsidies, industrial policies etc., may encourage or discourage production and supply. A tax on the commodity will raise the cost of production and reduce the supply while a subsidy on the other hand will provide an incentive to increase production and supply. 6. Exports and Imports : When the government resort to imports, supply expands, at the same time heavy exports would reduce the supply in the domestic market. 7. Nature of Market : In a competitive market, the supply would be more but in a monopoly market the seller may create artificial scarcity to raise the price. 8. Future Expectation : If future trends indicate a rise in price, the supply decreases at present. On the other hand if the sellers expect the future price to fall, supply would increase in the current period. 9. Technique of Production : Improvement in the technique of production will lead to increase in supply. Application of advanced technology enables the producer to produce goods on large scale at a lower cost and lesser price. 10. Infrastructure Facility : If means of transport and communication are well developed, the extent of market would be wide. i.e. supply will increase. 11. Natural and Man-made Calamities : Natural calamities like earthquake, cyclone, flood etc., will affect the supply in the market. Even man-made calamities like a bomb-blast, affects supply. Even a strike call can affect supply in the market. |
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