Factors that may cause a fall in the supply of a commodity

  1. Increase in cost of production: An increase in factor prices, for instance, tends to increase the cost of production which reduces the ability of firms to maintain or even expand their scale of production leading to a fall in supply.
  2. Inappropriate technology: since production depends on the method(s) used, the decision to use less mechanization than before, for example in agriculture, reduces the utilization of large pieces of land and thus the supply of a product reduces.
  3. Unfavourable natural events: In the event of unfavourable factors such as drought, pests or even deteriorating soil fertility, the supply of a commodity tends to fall.
  4. Government policy: the government as a matter of policy may decide to increase tax or reduce the amount of subsidy provided in the production of a particular commodity. The effect of this decision is an increase in production cost to a level which could become a disincentive to production, leading to a fall in supply of the commodity.

The fall in supply of a commodity caused by the above factors is represented by a leftward shift of the supply curve as shown below:


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