Lower costs of production mean that a business can supply more at each price. For example a magazine publisher might see a reduction in the cost of its imported paper and inks. These cost savings can then be passed through the supply chain to wholesalers and retailers and may result in lower market prices for consumers.
If the costs of production increase, for example following a rise in the price of raw materials or a firm having to pay higher wages to its workers, then businesses cannot supply as much at the same price and this will cause an inward shift of the supply curve.
A fall in the exchange rate causes an increase in the prices of imported components and raw materials and will lead to a decrease in supply. For example if the pounds falls 10% against the Euro, it becomes more expensive for British car manufacturers to import their rubber and glass from Western European suppliers, and higher prices for paints imported from Eastern Europe.
2.Changes in technology
Production technologies can change quickly and in industries where change is rapid we see increases in supply and lower prices for the consumer.
3.Government taxes and subsidies and regulations
Indirect taxes cause an increase in production costs - an inward shift of supply
Subsidies bring about a fall in supply costs – an outward shift of supply
Regulations increase production costs – an inward shift of supply
4.Changes in climate in agricultural industries
For commodities such as coffee, oranges and wheat, the effect of climatic conditions can exert a great influence on market supply.
Favourable weather will produce a bumper harvest and will increase supply. (An outward shift)
Unfavourable weather conditions including the effects of drought will lead to a poorer harvest, lower yields and therefore a decrease in supply (inward shift)
Because commodities are often used as ingredients in the production of other products, a change in the supply of one can affect the supply and price of another product. Higher coffee prices for example can lead to an increase in the price of coffee-flavoured cakes.
5.Change in the prices of a substitute in production
A substitute in production is a product that could have been supplied using the same resources. If cocoa prices rise for example this may cause some farmers to switch from other crops and invest money in establishing new cocoa plantations.
6.The number of producers in the market and their objectives
The number of sellers in an industry affects market supply
When new businesses enter a market, supply increases causing downward pressure on price. If the existing businesses decide to move away from maximising their profits towards seeking a higher share of the market, then total supply available at each price will increase – the market supply curve will shift outwards.
