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Unstable Commodity Markets

What are commodity markets?

A commodity is a word used when referring to raw materials used in the production of goods. It can
be produced and/or sold by many different firms, and in terms of quality, you cannot tell the
difference between the firms that sell it.…

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(1)

In a bad year when harvests are low, the shift left in the inelastic supply curve against the inelastic,
supply curve means that price and farmers' revenues will be very high. For consumers a bad harvest
implies higher prices so it is bad.




(2)

Consequently, many farmers make huge…

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(meaning a decrease in supply), the price may be in danger of rising too high, so the agency sells
from its stockpile.




(Imagine there is a normal supply curve on this graph) (3)

When there is a good harvest, supply shifts to S1, and the initial equilibrium price is within…

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The government might stabilise commodity prices and producer incomes through a guaranteed
minimum price scheme. An example of this is EU farmers who are guaranteed a set or minimum price
for some commodities, including sugar and wheat. Usually the minimum price is set above the free
market price, so there…

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4&tbnw=182&start=0&ndsp=18&ved=1t:429,r:7,s:0,i:93
(2) http://www.google.co.uk/imgres?q=Inelastic+demand+and+inelastic+supply+curve&hl=en&
biw=1366&bih=660&tbm=isch&tbnid=xck3NLo6xp6PWM:&imgrefurl=http://www.sparknot
es.com/economics/micro/elasticity/section2.rhtml&docid=TSJ_SIO7wStx-M&imgurl=http://i
mg.sparknotes.com/figures/5/5259b727009a2736d6ad639bab3494ff/shiftgas.gif&w=32
0&h=240&ei=J254UMa-COqq0QWkiIDgCw&zoom=1&iact=hc&vpx=563&vpy=355&dur=55
71&hovh=192&hovw=256&tx=163&ty=154&sig=101088878947977559268&page=1&tbn
h=146&tbnw=201&start=0&ndsp=18&ved=1t:429,r:14,s:0,i:112
(3) http://www.google.co.uk/imgres?q=buffer+stock+scheme+diagram&num=10&hl=en&biw=
1366&bih=660&tbm=isch&tbnid=MMEie6Y6rx4anM:&imgrefurl=http://www.tutor2u.net/ec
onomics/content/topics/marketsinaction/buffer_stocks.htm&docid=GNGgtrchco58yM&img
url=http://www.tutor2u.net/economics/content/diagrams/bufferstocks1.gif&w=321&h=30
0&ei=2XF4UN2oM-TK0QXy3YDwCw&zoom=1&iact=hc&vpx=960&vpy=143&dur=61&hovh=
217&hovw=232&tx=92&ty=92&sig=101088878947977559268&page=1&tbnh=145&tbn
w=155&start=0&ndsp=18&ved=1t:429,r:4,s:0,i:83
(4) http://www.google.co.uk/imgres?q=Minimum+price+scheme&num=10&hl=en&biw=1366&
bih=660&tbm=isch&tbnid=XYgq1ctFxqd7vM:&imgrefurl=http://tutor2u.net/economics/cont
ent/topics/marketsinaction/producer_subsidies.htm&docid=sNYoGQz7II61uM&imgurl=http:
//tutor2u.net/economics/content/diagrams/min_price1.gif&w=503&h=300&ei=i3h6UPi7Os
Gf0QWKsYCABQ&zoom=1&iact=hc&vpx=1034&vpy=316&dur=3177&hovh=173&hovw=29
1&tx=201&ty=82&sig=101088878947977559268&page=1&tbnh=113&tbnw=189&start=
0&ndsp=18&ved=1t:429,r:11,s:0,i:105

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