Supply function and determinants of supply

Supply function

Supply function studies the functional relationship between supply of a commodity and its various determinants(factors).supply of a commodity is a function of several factors as expressed in the following equation

Sx=f(Px,Pr,Nf,G,Pf,T,Ex,Gp) 

Sx stands for supply of commodity x,f is a functional relationship of Px ie,price of commodity x,Nf stands for no of firms,G stands for goal of the firm,Pf for price of factors of production,T stands for change in technology,Ex for expected future price and Gp for government policy.Now let us see how these determinanats affect supply of a commodity.

1)price of commodity(Px):there is a positive relationship between price of a commodity  and its quantity supplied.Generally higher the price,higher quantity of commodity is supplied.and lower the price of commodity lower quntity of commodity will be supplied.

2)price of related goods(Pr):suppose that good X  and good Y are related goods.Now let us suppose the price of good X rises then more quantity of X will be supplied and Lower quantity of good Y may be supplied.Thus the price of good X affects the supply of good Y.

3)Number of firms(Nf):Market supply of a commodity also depends upon number of firms in the market.Increase in number of  firms implies increase in market supply.obviously when there is a large number of firms producing a particular or related goods,the the market supply will increase.On the other hand if there is only one(monopoly) or few firms(oligopoly)in the market producing a particular or related goods then the supply of that commodity will be lower.

4)Goal of the firm: If Goal of the firm is to maximize profits,more quantity of the commodity will be offered at a higher price,on the other hand if the goal of the firm is to maximize sales(maximizes output or employment) more will be supplied even at the same price.

5)Price of factors of production:If the price if factors of production ie, land,labour and capital rises then more quantity of commodity will be produced and supplied.

6)Change in technology(T):change in technology also affects supply of the commodity.Improvement in technique of production reduces the cost production and thus more quantity of commodityvwill be supplied.

7)Expected future price(Ex):If the producer expects price of the commodity to rise in near future,current supply of the commodity will reduce or contract. Likewise, if fall in price is expected in near future,current supply will increase.

8)Government policy(Gp):Taxation and subsidy, these two policies effect market supply of the commodity.Increase in taxation tends to reduce supply.On the other hand,subsidies tends to increase supply of the commodity.