Commodities Demand

To understand how a commodities demand interacts with economic demand and marketplace prices, you need to understand how economics defines demand. Demand falls into two economic categories. Goods can either be elastic or inelastic. The categorization is based on the interactions of demand, supply and price. Commodities demand can either be elastic or inelastic.

Elastic

Elastic goods are only bought at certain demand levels. Each time you increase the price, buyer’s desire to purchase the good decreases. If price is too high demand will eventually disappear completely. People prioritize their needs, and elastic goods are quickest on the chopping block. Who’s going to buy a gaming console if it’s suddenly increased from $400 to $400,000 in price?

Inelastic

Inelastic demand functions completely opposite of elastic demand. These goods are always required and changes in price will never reduce demand. Think of food, water, housing, and electricity. If you increase the price, people stop buying elastic goods to afford their purchases of these goods. Increase the price further, they’ll start working overtime. Increase the price even further, and they start selling things they don’t really need to purchase these goods. Few goods are perfectly inelastic. People will tolerate and sacrifice to pay for high rent. At extremely high prices, they’ll simply begin packing their things and looking for a cheaper place to live. People will seek cheaper substitutes for inelastic goods if prices stay too high for a long enough period of time. They’ll use cheaper competitor products. They’ll even start to develop cheaper alternatives. If apples rose to $50 a pound overnight, grapes and bananas would be purchased far more often. Commodities are mostly inelastic. Agricultural products, Metals, and Energy fuels are not things you can simply decide you don’t want to buy anymore, even if you’re forced to buy an alternative from the same category.