Commodities include raw materials, minerals and foodstuffs. In the 1970s the price of one commodity, oil, increased fourfold when oil producers cut sales to the West (USA and Europe). Fears of oil shortages also resulted in a huge increase in the price of sugar during the mid to late 1970s. On the other hand, during the 1990s there was a significant fall in a wide range of commodity prices compared to their mid-1990s level as shown in the table below. Prices in 1999 Compared to the Mid 1990s (%) Coffee - 54 Cotton - 51 Wheat - 41 Sugar - 51 Rubber - 65 Aluminum - 39 Copper - 52 Nickel - 60 Lead - 41 The decline in commodity prices hurt developing countries the worst. In sub-Saharan Africa for instance, commodity export account for three quarters of total export earnings. Commodity prices have always been volatile. Food production, for instance, is typically affected by weather conditions and disease and demand is influenced by changes in tastes and, occasionally, medical reports and health scares. The market for raw materials and minerals is affected by new discoveries, development of substitutes, changes in technology and economic activity. However, the decline in price in the 1990s, caused by low growth and economic crises in Asia, Russia and Brazil, shocked commodity dealers and led to concerns about future supplies of commodities. Which commodity witnessed the largest and which the smallest price reduction from the mid-1990s to 1999. Using a supply curve diagram, illustrate and explain the effect on the supply of oil and of oil producers withholding oil sales. Using a diagram, illustrate and explain the effect on the demand for sugar due to a fear of a future shortage of sugar. Why is the supply of commodities so volatile? If there is a fall in the price of commodities, would the effect on the supply of commodities be greater in the short run or long run?
Commodities include raw materials, minerals and foodstuffs. In the 1970s the
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Prices in 1999 Compared to the Mid 1990s |
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(%) Coffee - 54 Cotton - 51 Wheat - 41 Sugar - 51 Rubber - 65 Aluminum - 39 Copper - 52 Nickel - 60 Lead - 41 |
The decline in commodity prices hurt developing countries the worst. In sub-Saharan Africa for instance, commodity export account for three quarters of total export earnings.
Commodity prices have always been volatile. Food production, for instance, is typically affected by weather conditions and disease and demand is influenced by changes in tastes and, occasionally, medical reports and health scares. The market for raw materials and minerals is affected by new discoveries, development of substitutes, changes in technology and economic activity. However, the decline in price in the 1990s, caused by low growth and economic crises in Asia, Russia and Brazil, shocked commodity dealers and led to concerns about future supplies of commodities.
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Which commodity witnessed the largest and which the smallest price reduction from the mid-1990s to 1999.
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Using a supply curve diagram, illustrate and explain the effect on the supply of oil and of oil producers withholding oil sales.
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Using a diagram, illustrate and explain the effect on the demand for sugar due to a fear of a future shortage of sugar.
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Why is the supply of commodities so volatile?
-
If there is a fall in the price of commodities, would the effect on the supply of commodities be greater in the short run or long run?
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