Supply, Demand and Price Elasticity
A commodity is a basic good that can be bought, sold, or even used as currency in parts of the world. Items such as coffee, sugar, soybeans, gold, silver, wheat, gasoline, corn, platinum, oranges, and crude oil are examples of commodities in the global marketplace. Consumers demand commodities to meet their needs in the consumption of food, or the creation of other goods or services. Suppliers, often farmers, supply the commodities to the marketplace. Several factors can affect both the supply and demand of commodities. Selected causes that affect supply and demand will be discussed as well as the effects these causes have on price, quantity, and market equilibrium. Finally, the paper will determine whether the chosen commodity, sugar, is a luxury item or a necessity, identify the availability of substitutes, and discuss how these attributes impact sugar’s price elasticity. Supply and Demand Impacts and Effects
As mentioned above, the commodity chosen for discussion is sugar. Much of the world considers sugar an important commodity, used for sweetening foods, and in making other products such as baking. For these reasons, consumers highly value sugar, so its demand remains high. Crops such as sugar cane and sugar beets produce refined sugar. These crops grow in many areas of the world, including the United States, Australia, and India. Sugar operates within a market economy, so several factors cause shifts in supply and demand. Perhaps the most important factor that affects the supply of sugar is weather. As a crop grown throughout the world, sugar cane or beets are subject to extreme temperatures, flooding, drought, and even insects. Recent severe flooding in northeastern Australia has diminished the world sugar supply (Josephs, 2010). As large amounts of sugar are lost to weather, the supply curve shifts to the left, quantity supplied drops, prices increase, and market...