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Price Behavior / T
ECO01 7
| Term | Definition |
|---|---|
| 1. Fluctuations in demand 2. Fluctuations in supply 3. Experimentation in the price-discovery process | 3 reasons for price fluctuations |
| A. Secular and long term trends B. cyclical movements C. Seasonal variations D. Annual variations E. Irregular or random movements | 5 types of price fluctuations |
| Seasonal price variations | Type of price fluctuations that tend to follow a more or less uniform pattern within the year and are observed to conform to this pattern over a period of years. |
| Seasonal price variations | Patterns that all agricultural commodity prices experience |
| Seasonal price variations | Occur when there is more or less regular pattern of changes in supply and demand |
| 1. Climate demand 2. Seasonal demand 3. Range/Perishability 4. Storage 5. Credit 6. Risk charges | Factors of seasonal price variations |
| Seasonal price variations | For certain agricultural commodities and consumer goods, price are largely affected by various holidays during the year as it may influence the demand of such products |
| Range of seasonal variation | Perishable nature |
| greater price variation | more perishable the product = |
| Short | Seasonal changes in prices are greatest for products with a relatively ____ harvest or marketing season. |
| Less developing, storage facilities | In ____ ____ countries, seasonal price fluctuations for most agricultural products are very pronounced because_____ _____ are scarce and costly and the risk is considerable |
| Pure | Methods of price determination under ____ competition can be applied directly to explain year-to-year product price variation. |
| Demand and supply function | May be viewed as representing annual averages with annual price changes arising from shifts in these functions. |
| Annual | ____ fluctuations in the production of farm products are likewise sensitive to many economic and non-economic factors. |
| Year-to-year / annual | ____ variation in prices is typically greater for crops which are not under price support than for livestock items. |
| a. yields are sensitive to weather conditions and pests, and b. Hectarage planted and harvested often can be changed from year to year. | Crops tend to have greater swings in annual production because: |
| Changes in supplu | In agriculture, a principal factor in yearly price variability is? |
| Demand | ____ also may change owing to fluctuations in export demands, variations in price substitutes, and systemic increases in population and income. |
| Supply | The ____ available in any one year is based mainly on current production and perhaps to some extent on imports and a carry over from a previous crop year. |
| Inelastic | When substantial year-to year shifts in supply continue with ___ demand, price fluctuations are likely to be great. |
| Trends | Type of fluctuation associated with general inflation and deflation in the economy |
| a. changes in the tastes and preferences of consumers b. Increases in production and income c. Technological change in production | Factors of trends specific to agri products |
| Inflation | Increase in general prices of goods and services in an economu |
| Inflation | Occurs when the prices of goods and services rise, while deflation occurs when those prices decrease. |
| Deflation | General decline in prices for goods and services, indicated by an inflation rate that falls below zero percent. |
| Distributed lag responses | May be a factor in longer term changes in economic variables. |
| Not instantaneous | Characteristic of economic responses |
| Time | Given a change in price, the change in quantity supplied is lagged and perhaps distributed through? |
| One | A ___ time increase in price could result in observed increases in quantity supplied over two, three, or more years. |
| Cyclical price variation | Type of fluctuation in rather regular patterns |
| Cobweb Model | A theoretical explanation of certain price-quantity paths through time. |
| Recursively | Prices and quantities are viewed as linked ____ in a causal chain. |
| 1. Time lag must exist bet decision to produce & actual realization of prod. 2. Producers base prod plans on current or recent past prices. Realized prod = f(x) of past prices. 3. Current prices = f(x) of current supply = determined by current prod | 3 Cobweb model factors = cyclical behavior of price and quantity |
| Cobweb | Comes from the pattern formed by joining the successive price-quantity observations on a conventional supply demand diagram. |
| Price takers | Assumption 1. Price is determined in a competitive market structure; producers are “___ ___” |
| Short-run | Assumption 2. Price is mainly determined by shifting levels of very____ supply (a perfectly price inelastic relation within each time period) |
| Price | Assumption 3. Production plans are based mainly on current ____ |
| one | Assumption 4. An observable lag of at least ____ time period is required for production change |
| Equaling | Assumption 5. A cycle depends on actual production ____ planned production |
| Static | Assumption 6. For a clear Cobweb, demand and supply relations must be ____. |
| Cobweb model, linear | _____ may lead, in principle, to divergent, convergent or constant amplitude (continuous) cycles in price and quantity. Typically, ____ supply and demand relations are assumed. |
| Convergent | The supply function in a ____ cycle has a steeper slope than the demand relation. |
| Converge | The price-quantity cycles, under tactic conditions, would ____ to equilibrium. |
| Diverges | If the demand function has a steeper slope than the supply funtion, then the cycle ____. |
| Contginuous, constant amplitude | The cycle is ___ if slopes are equa; |
| Well-defined | There are no _____ cycles in crop production where producers have considerably less control over production. |
| 1. Rational expectations 2. Price divergence is unrealistic and not empirically seen. 3. It may not be easy or desirable to switch supply. 4. Other factors affecting the price 5. Buffer stock schemes | Limitations of Cobweb theory |
| Irregular or random movements | Type of fluctuation in prices which lack any definite or systematic pattern and may be said to “just happen.” |
| Irregular or random movements | unexpected and unpredictable price shifts caused by unanticipated forces like interventions, strikes, physical destruction from typhoons and floods, or those forces which would not recur, at least, at predictable intervals |
| Rational expectations | Ideal: Farmers base next year's supply purely on the previous price and assume that next year’s price will be the same as last year (adaptive expectations). |
| Rational expectations | Reality: Farmers are more likely to see it as a ‘good’ year or ‘bad year and learn from price volatility |
| Price divergence is unrealistic and not empirically seen | Farmers only base supply on last year’s price means, in theory, prices could increasingly diverge, but farmers would learn from this and pre-empt changes in price. |
| It may not be easy or desirable to switch supply. | A potato grower may concentrate on potatoes because that is his specialty. It is not easy to give up potatoes and take to eggplant |
| 1. Farmer's decision to supply 2. Importation 3. Varying demand 4. Weather factors | Other factors affecting the price/ supply fluctuations in Cobweb Theory |
| Buffer stock schemes | Governments or producers could band together to limit price volatility by buying surplus. |
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jisoos