There are two main possibilities. The first one would be that it was an adjustment on the way to a commodities bubble burst. The second possibility was that we have reached the top of the bubble and it has burst. Although due to the prices rising again it is much more logical to say that it was just an adjustment to a much worse to come bubble burst which will leave millions of people shocked. There are another few theories on what affect the commodity prices, movement away from currencies meaning major currencies have been doing bad lately and people started investing in more stable things like commodities. This causing the commodity prices to rise since there is more demand for them. As well as China influences the prices, due to the extremely high economical growth and the middle class trying to secure their new earned wealth by buying commodities.
2) Why do commodity prices fluctuate more than house prices?
Commodity prices fluctuate more than house prices because, houses are a necessity, people need somewhere to live therefore the demand for houses is much less elastic than the demand for commodities. This meaning that a person without a house will have to buy a house although an individual without money to buy his favorite eggs or due to the prices going up will be able to replace it with bread or a different commodity. Since most commodities are substitutional.
3) What is the relevance of price elasticity of demand and supply in explaining the volatility of commodity prices?
The elasticity of varies on who the person buying is. If it is industries which produce products, it will very inelastic. Especially firms that need oil since there are little alternative to oil. On the other hand the elasticity of commodities for individuals is great, since most individuals who buy commodities invest in them to make a profit by selling them later. No straight minded individual would buy 200 tons of cotton just for the fun of it.
4) Under what circumstances is speculation likely to be (a) stabilising; (b) destabilising?
A) Speculation is likely to be stabilizing if the commodities prices are stable and follow the trend. As well as when they will have a stable growth or stable decline and will follow trends.
B) Speculation is likely to be destabilising under a few circumstances. The main one would be if the prices of commodities continue to be a mayhem as they are now. The sudden drop in the price of commodities in May 2011 and then the still strong growth has set speculators of.
5) To what extent are rising commodity prices (a) the cause of and (b) the effect of world inflation?
A) Rising commodity prices are not the cause of inflation.
B) The rising inflation is the cause of the commodities prices to be increasing. This is simple, since the value gets cheeper the prices of the commodities get bigger. Since the inflation in most countries has been rising pretty much lately commodities started looking very attractive for individual buyer.
6) If commodity prices go on rising every year, will inflation go on rising? Explain
Yes the inflation prices will rise with the prices of the commodities due to a simple reason. If the commodities are more expensive firms will need to raise the prices of their products to be able to still have profit. The prices of products in our stores rising will make inflation go up, or well it is the inflation rising.
Hope you enjoyed.
No comments:
Post a Comment