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AS Economics Revision - Stocks and Prices
22nd May 2010
In many AQA AS microeconomics exams, the focus of the stimulus materials is on a market or inter-related markets where prices have changed and which raise interesting questions about the causes of price volatility and arguments for and against some form of intervention.
One aspect for students to consider is the relationship between stocks of a product and the direction of changes in market prices.
Stocks (also known as inventories) are products ready for sale but not yet purchased. They might include finished output 9such as new cars) or inventories of components, work in progress and raw materials.
Movements in inventories can trigger price changes. In our two examples we focus on the market for copper and for crude oil. In both cases look to see how prices move when there is a noticeable reduction in stock levels, perhaps reflecting a rise in market demand set against an inelastic short-run supply. When stocks are low, prices are bidded up not least in commodities markets where speculators look to make speculative purchases when they feel that the balance of power in a market is tilting in favour of the seller (i.e there is excess demand and stocks are declining).
A market where inventories are high is one where, ceteris paribus, there is downward pressure on equilibrium prices.
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.