What factors affect supply of a good or service?

An easy way to remember factors that affect supply of a good or service is by using the acronym "PINTS WC".

Productivity. The more productive the firm's factors of resources are, the more output a firm can produce with a set amount of resources: more productive -> greater supply

Indirect taxes. If the government applies an indirect tax (a tax paid by the supplier on units of a good/service sold), supply of a good/service is likely to decrease.

Number of firms in the market. The larger the number of firms in the market for a given good/service, the greater the overall supply.

Technology. If a firm has advanced technology, it is likely that it it will be able to produce more so overall supply into the market will increase.

Subsidies. If the government provides a subsidy (a payment to lower the cost of production) to a firm, the firm will be able to use its increased resources to increase output. Therefore overall supply into the market will increase.

Weather (particularly relevant for agricultural products). If there is good weather at the right time in the year, it is likely that overall supply of a good may be greater.

Cost of production. An increase in the cost of any of the factors of production (land, labour, capital and entrepreneurship) will lead to an increased cost of production so a firm is likely to reduce supply into the market.

It is important to know all of these well since they may be asked as short answer questions or multiple choice questions (in which case you may not get a choice of which factors to use) or as Knowledge and Understanding in essay questions.

Answered by Jacob A. Economics tutor


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