52-handout-1

52-handout-1 - Price Volatility in Markets AS...

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Price Volatility in Markets AS Microeconomics November 2009
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World Commodity Prices Food Price Index High food prices still a concern Future Food Supply Discussed
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Causes of price volatility – demand-side factors 1. Demand may be highly cyclical (high income elasticity) 2. Peak/off-peak demand 3. Seasonal changes in demand 4. Speculative demand 5. Low price elasticity of demand
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Causes of price volatility – supply-side factors 1. Unstable conditions of supply 2. Changes in actual versus planned supply 3. Artificial limits on supply e.g. Export quotas 4. Low price elasticity of supply
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Crude oil prices Q&A on volatile oil prices
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Demand is main SR driver of oil prices Oil falls as demand set to drop
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And perhaps in the long run too!
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Basic supply and demand analysis Price Quantity D1 S1 Q1 P1
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Price Quantity D1 S1 Q1 P1 D2 P2 Q2 Rise in demand with an inelastic supply – causes steep rise in market price. Note too the low
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52-handout-1 - Price Volatility in Markets AS...

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