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DETERMINANTS OF SUPPLY
1. Costs of Production
a. Change in input prices: wages, raw materials etc.
b. Change in technology
c. Organisation changes leading to increased/decreased efficiency
d. Government policy including taxes and subsidies.
Substitutes - the higher the price of substitute goods, the higher the
demand will be for this good. If the price of coffee rises then demand
for tea will increase.
Complements - as the price of complements rises, demand for the
complement falls and so too will demand for the good in question. If
the price of petrol rises then demand for cars will fall.
3. Income
As peoples income rises demand for goods and services rise too. Goods
which obey this rule are called - Normal Goods. However the exception
to this is an inferior good. Demand for inferior goods will fall as
income rises. If margarine is considered an inferior good, as income
rises, people will switch to butter. The distribution of incomes will have
an effect too.
5. Population
The size and make up of the population affect demand. If there is a
growing population more food is demanded. If the population is stable
but is ageing (like Italy) things that old people need will increase in
demand - i.e. health care.