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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: goldsheet who wrote (70496)	5/27/2001 9:14:20 PM
From: E. Charters	Read Replies (1) \| Respond to of 116756

What you mean by inelastic demand is a demand that meets the rising price. In other words the demand does not change with price. In another kind of abstract world that would be considered elasticity but economists consider it inelasticity because the price versus amount demanded is a straight vertical line, with the constant point being quantity demanded and the line's length representing price. Demand is "inelastic" as it does not change with price. ******************* Obviously NOTHING is perfectly inelastic price-demand wise, as demand has to change with price eventually, nor can it be supply-price elastic, where for any supply, price never has to change. (implying I guess an ever growing demand at any price) Here we see a price-supply chart (make price the veritical index and supply or demand the horizontal index) with price line fixed at any particular value and going flat to to the right, allowing for any kind of supply to infinity. Well the abstraction is wrong you say. If price never changes what is elastic about that? It is the supply that is elastic. Well actually the supply is said to be infinitely price elastic. It can change to any level for any single price if the line is perfectly horizontal. If you tip the line down a bit it is relatively elastic until it passes 45 degrees where it becomes relatively inelastic. These lines cannot go upwards to the right. (Well actually they do short term but not classically) You cannot imagine increased supply causing an increase in price in most circumstances except dot com paper and the M3. We say supply is price elastic, if the price % change, over the % supply change is equal to less than one. Price ^ \| \| \| \ \|-- \---------------> perfectly elastic demand, one \| \ price fits all \| \ steep line, relatively inelastic, price changes fast \| \ with demand ---------------- > demand (Quantity) In other words price does not change as much in per cent as supply changes in per cent, increase or decrease, in an elastic situation. In the price demand chart, the demand changes elastically if the line descends to the right at less than 45 degrees from the horizontal and inelastically at more than 45. Why? Because the change in price over the demand or quantity sold is more or less than one. If the price changes less than the supply or demand change, we say that we are elastic, if more, then inelastic. So gold price is elastic relatively with regards to supply. It's price changes little with more and more supply. With regards to demand it is relatively inelastic i.e. at "any price", its demand is constant. But it is not perfectly so. The thing that keeps it within these ranges are its lack of substitutes, its relatively low supply and its high cost. Is Gold a compromise between inelastic and elastic? I guess from time to time all commodities are. What the gold bugs want to see is more inelasticity of supply. why? Because supply is getting scarce with low prices. What you want to see then is a slight drop in supply to cause a sharp increase in price. It is a double edged sword. But with supply elasticity being predominant we would have to see a large drop in gold supply by a disastrous short covering to see a move in the price. The trouble with classic curves is that they do not reflect market realities except in long term and generalized and idealized concepts. In fact gold is funny. It is not price demand driven. If it falls in price, it does not attract more buyers. The reverse is true to an extent. So it is not a commodity really. Supply curves are operative to an extent but its supply, barring attempts to control its price by market flooding, is relatively constant and long term, so it does not really effect prices that much. It is not subject to rot and crop failure. Those who would say it is out of fashion do protest too much. Markets are mature and well adjusted to changes in fashion. The supply and demand curves that we should look at to determine the range of gold is not the supply demand of the metal but the supply demand of its substitutes, paper money, and other metals. Here we see a strange market too. Money just keeps growing out of pace with the economy, but avers a constant value. This cannot be, so we are living in a fools paradise. Eventually the piper must be paid. EC<:-}