The seven factors which affect the changes of supply are as follows:
(i) Natural Conditions (ii) Technical Progress (iii) Change in Factor Prices (iv) Transport Improvements (v) Calamities (vi) Monopolies (vii) Fiscal Policy.
We cannot attribute changes in supply to changes in price, because when supply changes in consequence of a change in price, it is called extension and contraction, and not increase or decrease. In order to account for increase or decrease in supply, we have to discover the factors which bring about a change in the very conditions of supply. In other words, we must ascertain why supply expands or shrinks irrespective of the changes in price. The answer lies in the changes in the system of production.
The following are some of the factors which affect supply:
(i) Natural Conditions:
If rainfall is plentiful, timely, and well distributed, there will be bumper crops. On the contrary, floods, droughts, or earthquakes and other natural calamities are bound, to affect production adversely. This is one set of conditions which brings about a change in the supply.
(ii) Technical Progress:
The volume of production or supply is also influenced by progress in the technique of production. In manufacturing industries, this is a very important factor. A new machine may have been invented, a new process discovered, or a new material found, or perhaps a new use may have been found for a by-product. The discoveries of synthetic dyes, artificial rubber and wool are some such discoveries or improvements in technique.
(iii) Change in Factor Prices:
A change in the prices of the factors of production also brings about a change in the supply of the commodity. If the factors of production become cheap, the supply will increase, and vice versa.
(iv) Transport Improvements:
Improvement in the means of transport reduces the cost and increases the supply of the product. Thus conditions of supply change.
Calamities like war or famine must also affect the supply of goods. We are only too familiar with the shortage-of commodities caused by the war and the dislocation of production by famine. Even at higher prices adequate supplies are not forthcoming.
The monopolists may deliberately increase or decrease the supply as it suits them. Thus exercise of monopolistic power brings about a change in supply.
(vii) Fiscal Policy:
The fiscal policy of the Government also may affect the supply. For instance, a higher import duty will restrict the supply and a lower duty will stimulate it. These are some of the factors which bring about changes in the conditions of supply and increase it or decrease it.