Explain why the prices of primary commodities are prone to instability in the short term and downward movements in the longer term. Examine the alternative way commodity prices can be stabilized .Use real world examples wherever possible to illustrate your answers. A primary commodity is a physical substance such as food and grains and metals, which is interchangeable with other products of the same type, and which investors buy or sell, usually through future contracts. …
showed first 75 words of 987 total

showed last 75 words of 987 total
…price inelastic and also because primary commodities especially agricultural commodities are prone to supply shocks. Downward trends in price occur because of technology use and consumer preferences change. The two ways used to stabilize prices is to create buffer stock system and production quotas ,although quotas can have problems associated with them. Mainly because of countries or firms that are not part of the production quotas and so will produce independent of the quotas decisions.