Micro 17 - Application of markets to the real world

Question 1

What are commodities?

Answer 1

Commodities are raw materials used in the production process.

e.g - oil and sugar

Question 2

Are commodities elastic or inelastic in supply?

Answer 2

Inelastic

Question 3

Why is the market of commodities prone to failure?

Answer 3

Commodities aren’t produced fast enough while price increase very fast, so people are rationed out of the market and can’t afford them.

Question 4

What are the arguments for not intervening when food prices increase?

Answer 4

Neo-classical economists say that firms will supply shortages.
When prices increase, there will be an incentive for firms to produce more food.
This happens due to signals they get from customers complaining about high price, because they have been rationed out of the market.