Technology Technological change reduces costs and increases supply. Regulations affect costs directly and supply indirectly. The supply of a product is directly related to the number of sellers. Substitutes in Production A rise in the price of an alternative output will shift resources toward that product and away from current uses. Supply decreases when the price of a substitute in production rises.
Taxes raise costs and reduce supply.
Excise taxes are a fixed dollar amount per unit of the item taxed. causes a parallel shift in the supply curve. Ad valorem taxes are a fixed percentage of the price of the item taxed. Supplies across time shift to account for price changes. The Supply Function Supply functions mathematically summarize the supply relationship. Explicit supply functions define the specific mathematical relationships among the variables.