Supply and Demand

Oil prices are now very low and all energy prices are very low however you measure them, compared with ten years ago. Most commodity prices are low. prices of raw materials are low compared with prices of ten years ago and so are many food prices.

There are probably several reasons for low prices today. one is the lack of inflation and very low interest rates. Another is exploitation of cheap easy to access fossil fuel. A third reason is the political effect of wars, armed conflict and international sanctions on prices. There is also the old twin factors of supply and demand.

What goes up for most of my lifetime has continued to go up, for most things, but now we are seeing that what goes up can also come down. It strikes me that some prices have always been maintained at an artificially high level, because the suppliers kept in check the supply while the demand grew. Good examples of this are oil, where for decades OPEC nations maintained high prices, or diamonds where De Beers maintain high prices quite out of all relation to the actual supply of diamonds.

The closer that the nations of the world come together in terms of trade, the increase in prosperity in what were developing nations but are now powerhouse behemoths, like China and India,  seems to have the effect of maintaining high prices which have no relationship to supply and every relationship to demand becoming less likely.

Every business strives to be a monopoly; a small pub in a small town would like there to be no competition so it can charge what the market will bear, which will be higher than what the market will bear if there are many pubs. A multinational drinks business will try to expunge as many of its competitors as it can, often by acquisition and occasionally by price wars.
In the UK we have seen the large supermarkets, who once had the field to themselves being forced to lower prices by the arrival of small competitors which sell at cheaper prices.

But nothing lasts for ever, especially stable or reducing prices. On a level playing field supply and demand creates prices but you can be sure that all over the world enterprises are doing their best to make the playing field titled in their favour.

Supply and demand of money, like every other commodity is most critical, for those who control the supply of money to a nation control the nation, as Greece has discovered.

One Response

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: