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Factors That Can Affect Supply ((If the costs of production increase (for…
Factors That Can Affect Supply
INTRODUCTION OF NEW TECHNOLOGY:
New technology means that more goods can be supplied
Mechanisation and automation of production processes means supply can increase
Mass production methods improved to increase capacity
INDIRECT TAXES:
When the government increases tax on goods such as petrol then supply will decrease
VAT / Customs tax / Excise tax are all indirect taxes and when applied to goods it makes supplying them less attractive. This can lead to a decrease in supply….
Supply is measured in terms of the quantity of a good or service that a producer is willing and able to make available on the market, at a given price, over a given period of time.
If the costs of production increase (for example)
Due to rise in raw materials
Rise in minimum wage
Rise in overheads
Rise in rent or mortgage rates on premises
Then the amount supplied will decrease as less profit will be made
Businesses will switch to production of more profitable products (profit signalling mechanism at play here)
Changes in the cost of production :
GOVERNMENT SUBSIDIES :
This is a payment from the government to encourage more suppliers to enter the market and to supply more. With a subsidy there is an increase in supply.
For example the Government pays subsidies to wind farm manufacturers to erect turbines offshore in the UK. This adds about £18 a year to a UK householder’s energy bill.
Without these subsidies not enough turbines would be built.
Changes in oil price
Change in tax rate
Changes in labour laws (e.g. length of working week)
For example if the cost of oil increases this increases cost of production, and may lead to job losses or cost cutting, and will result in a decrease in supply
EXTERNAL SHOCKS :
Productivity : the rate at which goods or services are produced
Shock : an event which causes a change within an economy which occurs outside of it. Unpredictable and may affect supply.
Automation : method of operating or controlling processes by automatic means using devices. Reduces need for human interaction.
Mechanisation : method of operating or controlling processes using machinery
Indirect tax : taxes levied on products or services before they reach the consumer e.g. VAT and excise
Government subsidy : a grant or gift of money from the government to encourage supply of certain goods e.g. milk subsidies