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The Determinants of Supply


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Technology as a Determinant of Supply
The Determinants of Supply
Technology, in an economic sense, refers to the processes by which inputs are turned into outputs. Technology is said to increase when production gets more efficient- i.e. when firms can produce more output than they could before from the same amount of input. (Alternatively, an increase in technology could be thought of as getting the same amount of output as before from fewer inputs.) On the other hand, technology is said to decrease when firms produce less output than they did before with the same amount of input, or when firms needs more inputs than before to produce the same amount of output.

This definition of technology encompasses what people usually think of when they hear the term, but it also includes other factors that impact the production process that are typically not thought of as under the heading of technology. For example, unusually good weather that increases an orange grower's crop yield is an increase in technology in an economic sense. Furthermore, government regulation that outlaws efficient yet pollution-heavy production processes is a decrease in technology from an economic standpoint.

Increases in technology make it more attractive to produce (since technology increases decrease per unit production costs), so increases in technology increase the quantity supplied of a product. On the other hand, decreases in technology make it less attractive to produce (since technology decreases increase per-unit costs), so decreases in technology decrease the quantity supplied of a product.

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