The creation of economic
goods is the task and responsibility of entrepreneur. Economic goods to be
produced must be those that will satisfy human wants and must have value and utility. No one can fathom the behavior of consumers for all time with accuracy. No one could predict exactly what the demand would be when the price of commodities changes. The law of
supply states as price increases
quantity supplied increases and as price decreases quantity supplied decreases. The price and quantity supplied under this principle has a direct relationship. When price of goods are high producers are willing to produce and sellers offer more goods at higher price because they gained more profit. However, the law of supply is true only when the assumption of ceteris paribus is applied. There are factors of supply that will guide us to determine whether the law of supply is true and correct. The following are the factors or determinants of supply that affect quantity supplied in the given
market : (1) Technology. It is society’s pool of knowledge. This may refer also to the techniques or methods used. The level of technology set limits on the amount and types of goods and services that can be derived from a given amount of resources. There is lesser production when manual labor is used in producing goods and services while with the aid of modern technology production is fast and there can be more goods and services that can be produced. (2)
Cost of Production. It is the value of the factors of production used in producing unit of a commodity. When cost of materials or ingredients to be used in producing goods will keep on increasing while the market price is very low quantity supplied will decrease, on the other hand, when such cost is constant and market price is high quantity supplied will increase. Quantity supplied is dependent on the viability or profitability of production. When production cost is lower producers are willing to produce more goods and services.
(3) Number of Sellers. It is noticeable in the market that when there are more sellers or factories there are more supplies of goods and services. (4) Prices of other goods. The change in price will also change the number of quantity supplied in the market. A good example to this is the prices of corn or rice. When prices of corn increases, consumers will tend to buy rice for consumption and when price of rice will increase the buying public will look for good substitute. In this instance the quantity supplied in the market of other goods that are considered as good substitute will change. The farmers will tend to produce more on the goods that are saleable in the market. (5) Price expectation. This creates artificial shortage of goods due to hoarding of such goods. If producers or sellers expect prices to rise very soon they will keep their goods and release then in the market when the prices are already high. (6) Taxes and subsidies. Cost of production is affected by the taxes imposed by the government. As the tax of certain goods increases the supply of such goods will decrease because higher taxes discourage production due to the reason that it reduces the earnings or profit of businessman. Subsidies refer to financial grants or financial assistance to producers. It reduces cost of production and as such it induces farmers to produce more. A good example is fertilizer subsidy granted by the government to small farmers. Assuming that the market price per bag of fertilizer is P100.00 but when it is sold to the small farmers it will be at P80.00. The government will pay the difference between market price and the subsidized price. Economic goods are also classified into two according to its period of production: (1) industrial goods – those that can be produced in a short period of time;(2)agricultural goods – those that are produced in long period of time. (7) period of producing the goods. The quantity of supply is not only affected by the factors or determinants aforementioned. It is also affected by the span of time that it is produced.
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