Chapter6: Elasticities
Section: Chapter Questions
Problem 12P
Related questions
Question
Identify the NonPrice determinants of supply in the dentistry field.
(per factor)
Transcribed Image Text:NonPrice Determinants of Supply
1. Cost of production
• Supply is highly dependent on the cost of production. Firms can
increase their output when the prices of inputs decrease. Conversely,
output tends to decrease when production costs increase. Plans for
2
expansion of capacity are jeopardized by increasing costs of
production.
2. Number of suppliers
Supply is also dependent on the number of sellers. When new firms
begin to operate, they bring in additional supply to the market,
increasing the total available supply. In contrast, the withdrawal of
existing firms reduces the amount of supply in the market.
3. Prices of goods and services
• The prices of some goods and services affect the supply of other goods
and services. If a producing firm, for instance, finds that the price of its
current output has gone down considerably, it may chanc:"
products to a new one.
4. Taxes and subsidies
Payment for taxes is an added component of the cost of production.
Higher taxes mean higher production costs. And firms are discouraged
to produce more goods and services. Subsidies are money given to
firms by the government to help them maintain their current or
designed output. The money received by firms effectively reduces their
cost of production, and they are encouraged to produce more goods
3/5
and services.
5. Technology
• Improvements in technology make possible the production of goods
and services at lower costs.
Vhen these are adapted by firms, they will
be able to produce more.
Summary
The market is a powerful mechanism used to provide answers to the
fundamental economic problem. The market consists of buyers and
sellers whose actions and decisions are translated into supply and
demand.
Demand is highly dependent on price. The other factors affecting the
demand are needs, preferences, income level, expectations about
the future, prices of related commodities, the buyer's situation, and
others.
Supply is also highly dependent on price but is also affected by other
factors like cost of production, number of suppliers, prices of related
goods and services, taxes and subsidies, and technology.
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