Why do primary products exhibit price inelasticity in supply and demand ?
Show answer Hide answer
Answer: D. tend to be very unstable from year to year
Explanation
Primary commodity markets feature inelastic supply and demand curves. Shifts in supply or demand generate large price volatility across years. Agricultural and mineral products exhibit inherently unstable market pricing. Inelastic demand means consumers do not change consumption much when prices change. Inelastic supply reflects long production lags required to adjust output quantities. Market shocks interact with inelasticities to cause severe price fluctuations.
Developing economies dependent on primary exports face severe revenue instability. International organizations monitor commodity price volatility for macroeconomic stability. Stabilization funds help producing nations manage volatile export earnings. Steadily rising prices do not explain annual volatility and inelasticity mechanics. Primary prices are far more unstable than manufactured goods prices. Fluctuating about as much underestimates the extreme volatility of primary products.
Related questions
Q1. Brassica is the Latin nomenclature for what spice ?
Show answer Hide answer
Answer: A. mustard
Brassica is the established botanical genus name for mustard plants. Taxonomic nomenclature classifies mustard within the cruciferous vegetable family. Botanical terminology identifies mustard species using this specific...
Q2. What does bilateral aid involve ?
Show answer Hide answer
Answer: B. is given directly by one country to another
Bilateral aid refers to foreign assistance given directly by the government of one country to the government of another. The donor nation transfers financial grants or technical resources straight to the recipient govern...
Q3. What life expectancy did the U.S. Census Bureau project for Botswana and South Africa by 2010 ?
Show answer Hide answer
Answer: B. 30 to 40 years, a fall of more than 10 years from 1995
HIV/AIDS dramatically reduced life expectancy across southern African nations. Botswana and South Africa experienced severe mortality increases during this era. Projections indicated a drop of over ten years compared to...
Q4. What is a common criticism of Baran’s Neo-Marxist thesis ?
Show answer Hide answer
Answer: C. transferred from one elite to another when revolution occurs
Baran's Neo-Marxist thesis faces criticism regarding post-revolutionary elite dynamics. Critics argue revolutions often substitute one ruling elite for another. True structural liberation fails to materialize when elites...
Q5. What do economists mean when they talk about controlling the monetary base ?
Show answer Hide answer
Answer: A. making banks keep a certain % of their assets as M0
Controlling the monetary base involves central bank management of reserve requirements and base money (M0) held by commercial banks. Central banks regulate the total volume of currency in circulation and commercial bank...
Q6. How does domestic currency depreciation impact the trade deficit due to the J-curve effect and partial pass-through ?
Show answer Hide answer
Answer: D. trade deficit in the long run
Long-run trade balance outcomes depend on export and import demand elasticities. Marshall-Lerner conditions determine whether currency depreciation improves trade deficits. Inelastic long-run adjustments can leave countr...