16) market examples

Question 1

What are some characteristics of agricultural/ commodity markets?

Answer 1

Prone to price volatility

• traded internationally
• homogenous so easily substituted
• unpredictable factors

Question 2

What elasticities do commodities/ agricultural products tend to have?? demand/supply/income

Answer 2

demand tends to be inelastic because stuff like food and fuel are necessities

• supply is often inelastic too because it takes time to harvest products and can’t always be stored for long
• income elasticity also inelastic as demand for food never really increases or reduces with income

Question 3

What are the effects of price instability?

Answer 3

• reduces investment into the market
• adds to cyclical unemployment and income
• huge effect on consumer and producer welfare

Question 4

How are long run prices of agricultural products changing and why?

Answer 4

-overtime agricultural products are decreasing in value because of technological improvements which lowers the costs of harvesting, and therefore less wages are being paid to workers as capital becomes cheaper

Question 5

Why is the price of oil important to an economy?

Answer 5

• it has a lot of composite and derived demand because it is important for the production of many things
• it is prone to price volatility and is affected by political factors too
• its demand and supply are very inelastic as it is not easily obtainable and very much needed by many producers and consumers

Question 6

What factors affect the price of oil?

Answer 6

• value of US dollars because oil is priced in dollars-
• speculation of oil due to its price volatility
• seasonal and dependent on economic growth
• living standard increases see a higher reliance on oil
• weather factors eg cold weather means more demand for oil for heating

Question 7

What supply side factors affect the price of oil in the short run and long run?

Answer 7

short run=-supply side shocks like political factors or war see a big decrease in supply

Long run=size of oil reserves, more oil= higher supply and lower prices

• cost of extracting oil, some reserves require too high a cost to extract
• technology and efficiency of extracting oil

Question 8

What factors affect the supply of houses?

Answer 8

• costs of factors of production
• government regulation
• number of firms building

Question 9

What mainly determines the price of houses and why?

Answer 9

Demand factors

• areas of high unemployment see a fall in house prices and lower demand
• consumer confidence, economic growth and income increase demand for houses
• interest rates due to houses being bought via a mortgage
• price of renting (substitutes)

Question 10

What are the short run elasticities of supply and demand and why?

Answer 10

Supply- inelastic as houses take time to build and are not in high supply, workers and factors of production take tine to gather too

demand- inelastic as small changes in house prices wont see a huge increase in demand, no close substitutes either