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| Science Forum Index » Economy Forum » Why does a small supply shock = huge market instabilities? |
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| Brablo |
 Posted: Wed Nov 09, 2005 3:31 pm |
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Guest
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i noticed that if the supply of some commodity decreases *slightly*
(i.e. gasoline or food), then huge market repercussions exist. nobel
laureate, amartya sen, noticed that the great famine of india in '43
wasn't caused by a food shortage, but it was due to other mechanisms.
i noticed, empirically, that if the quantity of something is reduced a
little, thaen there is pandemonium in the markets and also huge
disruptions. is this a law of economics, or just my imagination? is
this the rule or the exception to the rule? by how much would the cost
of something increase if its supplies were decreased by 1%? i'm
thinking much more than 1% rise. |
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| Guest |
| Posted: Wed Nov 09, 2005 10:08 pm |
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On 9 Nov 2005 12:31:55 -0800, "Brablo" <gestureofrespect@yahoo.com>
wrote:
[quote:5adf61f050]i noticed that if the supply of some commodity decreases *slightly*
(i.e. gasoline or food), then huge market repercussions exist. nobel
laureate, amartya sen, noticed that the great famine of india in '43
wasn't caused by a food shortage, but it was due to other mechanisms.
i noticed, empirically, that if the quantity of something is reduced a
little, thaen there is pandemonium in the markets and also huge
disruptions. is this a law of economics, or just my imagination? is
this the rule or the exception to the rule? by how much would the cost
of something increase if its supplies were decreased by 1%? i'm
thinking much more than 1% rise.
[/quote:5adf61f050]
Google "elasticity of supply and demand."
-- Roy L |
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| PATRICO |
| Posted: Thu Nov 10, 2005 8:09 am |
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Guest
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This is certainly a very basic economics. I would advice you to read a
most simple book you can find on economics. Samuelson or Mawkin could
be good.. You can also use www.wikipedia.org and search for elasticity.
Alas, it's not in our crafts to write here an economics text book.
To feed you desire, here are some simple explanations:
- I supply of oil decreases people will still want to buy it, because
they need to drive to work and buses need to run as well, supplies to
your grocery shops must be made. This is called the demand is
inelastic. Price will change a lot.
- Yet, no goods are like oil, if they decrease the supply of say Pepsi,
you can always buy other drinks to suit your needs. This is to say
Pepsi has more elastic demand then Oil. Decreases of supply in Pepsi
will not double its price, because nobody would buy it anymore. Unlike
the oil, here you have a choice. |
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