IB Economics 2.2.4 Non-price Determinants of Supply Notes

Price is not the only factor that affects the supply of an individual firm or the market. These other factors are referenced to as the non-price determinants of supply.

The non-price determinants of supply covered in the IB curriculum:

1. Changes in costs of factors of production.
2. Price of related goods.
3. Indirect taxes and subsidies.
4. Future price expectations.
5. Changes in technology.
6. Number of firms in the market.

Changes in costs of factors of production (FOPs)

Increased costs of factors of production → leftwards shift

1. When the costs of FOPs rise (such as higher wages, increased rent, or pricier raw materials) production becomes more expensive.
2. This increase in costs reduces the quantity that the firm (or firms) is willing and able to supply for every given price.

Decreased Costs → rightwards shift

1. Alternatively, If FOPs costs fall, production becomes cheaper and more profitable.
2. This reduction in costs means the firm (or firms) is willing and able to supply more for a given price

Prices of related goods: competitive and joint supply

Competitive supply

If two goods are in competitive supply, producing more of one means that the production of the other has to be reduced.

Higher prices of a competing good → leftwards shift

1. A rise in the price of one good (e.g., smartwatches) incentivises firms to produce more of that good (more smartwatches since their price has increased).
2. Therefore, this leads to the supply of the competing goods (e.g., smartphones) to fall because the resources are allocated to the goods in which the prices increased (since firms look to increase their revenue).