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Prices for commodities: what are the key determinants?

19.06.2009

Prices for commodities: what are the key determinants?

Recently a number of economists and political scientists have been discussing the mechanisms of price-making for commodities. According to numerous statements, the prices for virtually all goods are set by the seller, whereas oil prices are set by the buyers. This is far from being rational. The idea was first expressed on Russian television several months ago and is often quoted in mass media since then. Is this really true?

When speaking about goods with individual features (automobiles, computers, televisions, etc.) the prices are strongly influenced by the producer. At the same time, both supply and demand are taken into account. But if a standardized commodity is being offered at a commodity exchange, then how the producer can determine its price? Isn’t it the correlation of demand and supply which determines the prices for what, sugar, oil and other competitive goods? On the other hand, if the prices are determined by the buyers, then why have they let such an increase of prices for oil last year?

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