Primary Commodities, Price volatility- Causes and Consequences

Question 1

What are primary commodities?

Answer 1

Raw materials used in production, such as agricultural goods, metals, and energy resources.

Question 2

Why is demand for primary commodities often price inelastic?

Answer 2

They are necessities with few or no close substitutes.

Question 3

Why is supply for primary commodities often price inelastic?

Answer 3

Long production times (e.g. growing crops)

Difficulty in storage (perishability)

Natural conditions affect output (e.g. weather)

Question 4

What causes price volatility in primary commodity markets?

Answer 4

Inelastic supply and demand

External shocks like weather, disease, or conflict

Seasonal variation

Question 5

What happens when commodity prices rise?

Answer 5

Producers gain: increased revenue and income

Investment and living standards may improve

Question 6

What happens when commodity prices fall?

Answer 6

Producers lose revenue → profits fall

Risk of poverty, unemployment, and underinvestment

Question 7

Why is price volatility a concern for producers?

Answer 7

Unpredictable income makes it hard to plan, invest, or repay loans—leading to economic instability.