Commodity Supply and Demand in the International Market
Introduction
Supply and demand are two of the most important concepts in economics. In an international market, supply and demand can be affected by a wide range of external factors such as government policy, natural disasters, and economic conditions in other countries. Understanding how supply and demand work in the international market is essential for businesses to successfully trade goods and services. This report will analyse the supply and demand in the international market and explain the factors that influence it, as well as the effect it has on the price of commodities.
Supply and Demand in the International Market
The demand for commodities in the international market is driven by global economic growth. This can be affected by changes in population, technology, and access to resources. Economic growth can also be influenced by government policy, such as tariffs and subsidies. On the other hand, the supply of commodities in the international market is determined by how much of a good or service is available and how expensive it is to produce. This is impacted by factors such as the costs of production, the level of competition, and the availability of resources.
As international markets become more interconnected, supply and demand can effect each other across different locations. When the demand for a commodity rises in one country, this can cause the price to go up in other countries as well. Similarly, a disruption in the supply due to a natural disaster or political unrest could lead to a shortage in one country and cause the price to skyrocket. This phenomenon is known as the butterfly effect and is an important factor to consider when pricing commodities in the international market.
The Effect of Supply and Demand on the Price of Commodities
The relationship between supply and demand is a key determinant of the price of commodities in the international market. When demand is high, prices rise as more buyers compete for limited supplies. On the other hand, when demand is low, prices fall as suppliers attempt to sell more of their goods and services. This concept is known as the law of supply and demand and is a key determinant of pricing in the international market.
The law of supply and demand can also be affected by government policy. Governments can impose taxes and tariffs on imports in order to protect domestic industries and encourage consumption of domestic products. This can lead to an artificial increase in the price of commodities in the international market as buyers will be less likely to purchase from abroad due to the additional cost. Similarly, the removal of taxes and tariffs can lead to a drop in the price of commodities as buyers from other countries are able to access the same goods at a lower cost.
Conclusion
In conclusion, supply and demand are two of the most important concepts in economics. Understanding how these two forces work in the international market is essential for businesses to successfully trade goods and services. The demand is driven by global economic growth and is affected by government policy, while the supply is determined by the costs of production, the level of competition, and the availability of resources. The relationship between supply and demand is a key determinant of the price of commodities in the international market and can be affected by government policy such as taxes and tariffs.
