Question:medium

What do you understand by market supply? Describe the determinant elements of supply.

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Market supply = sum of individual firms' supply; determinants: own price, related-good prices, input costs, technology, tax/subsidy, number of firms.
Updated On: Sep 23, 2026
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Solution and Explanation

Step 1: Frame market supply as "adding up every seller":
At any given price, ask each firm in the industry how much it would sell, then sum these quantities across every firm — that sum, at each possible price, traces out the market supply curve.

Step 2: Work through the determinants using a real example — say, wheat farming:
(i) If wheat's own price rises, farmers plant more wheat. (ii) If the price of an alternative crop (say sugarcane) rises sharply, some farmers switch land away from wheat, cutting wheat supply. (iii) If fertiliser/labour costs rise, growing wheat becomes less profitable, cutting supply. (iv) If a new high-yield seed technology arrives, farmers can produce more wheat at the same cost, raising supply. (v) If the government offers a fertiliser subsidy, cultivation cost falls and supply rises; a new farm tax would do the opposite. (vi) If more farmers start growing wheat (entry), total market supply rises.

Step 3: Summarise the six determinants generically:
Own price, prices of related/alternative goods, factor (input) prices, technology, government policy (tax/subsidy), and number of sellers/firms — any change in these shifts the entire supply curve (as opposed to a price change, which causes a movement along it).

Final Answer:
Market supply = horizontal sum of individual supplies; it shifts due to changes in the good's own price, related-goods' prices, input costs, technology, government policy, and the number of firms.
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