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  • Price Elasticity of Gold

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    paps3535_29555442
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    This document discusses the elasticities of gold, including price elasticity. It begins by defining elasticity as a measure of how sensitive a variable is to changes in another variable. For gold, price elasticity measures how responsive the quantity demanded is to changes in price. The document finds that gold demand is relatively inelastic in the short run but becomes more elastic over longer periods. Other elasticities discussed include income elasticity and cross-price elasticity with silver as a substitute. The conclusion is that gold demand is influenced by the snob effect, expectations of future prices, the large number of buyers, and its status as a preferred investment vehicle.

    Descriere originală:

    Degree to which consumers/producers change their demand/amount supplied in response to price or income changes is called as elasticity.Discussion on price elasticity of Gold.

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    This document discusses the elasticities of gold, including price elasticity. It begins by defining elasticity as a measure of how sensitive a variable is to changes in another variable. For gold, price elasticity measures how responsive the quantity demanded is to changes in price. The document finds that gold demand is relatively inelastic in the short run but becomes more elastic over longer periods. Other elasticities discussed include income elasticity and cross-price elasticity with silver as a substitute. The conclusion is that gold demand is influenced by the snob effect, expectations of future prices, the large number of buyers, and its status as a preferred investment vehicle.

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    © All Rights Reserved
    Descărcați ca PDF, TXT sau citiți online pe Scribd
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    1K vizualizări18 pagini

    Price Elasticity of Gold

    Încărcat de

    paps3535_29555442
    This document discusses the elasticities of gold, including price elasticity. It begins by defining elasticity as a measure of how sensitive a variable is to changes in another variable. For gold, price elasticity measures how responsive the quantity demanded is to changes in price. The document finds that gold demand is relatively inelastic in the short run but becomes more elastic over longer periods. Other elasticities discussed include income elasticity and cross-price elasticity with silver as a substitute. The conclusion is that gold demand is influenced by the snob effect, expectations of future prices, the large number of buyers, and its status as a preferred investment vehicle.

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    din 18

    Introduction

    Price Elasticity of Gold


    Other Elasticities of Gold
    Inference

    What is Elasticity

    A measure of a variable's sensitivity to a change in another


    variable.
    In economics,
    Degree to which consumers/producers change their
    demand/amount supplied in response to price or income changes.
    Elasticity = % change in quantity X
    % change in price X
    Introduction

    Price Elasticity of Gold

    Other Elasticity of Gold

    Inference

    According to the law of demand, when price increases, quantity


    demanded varies.
    To answer this question, economists use the concept of price elasticity of
    demand.
    Price elasticity of demand is a measure of the
    responsiveness of the quantity of a product demanded by
    consumers when the product price changes.

    Introduction

    Price Elasticity of Gold

    Other Elasticity of Gold

    Inference

    For some products, consumers are highly responsive to price changes.


    Demand for such products is elastic.
    For other products, consumers responsiveness is only slight or in rare
    cases non-existent. Demand is said to be inelastic.

    Introduction

    Price Elasticity of Gold

    Other Elasticity of Gold

    Inference

    Substitutes
    the larger the number of substitute goods that are available, the higher the elasticity
    Proportion of Income
    the higher the price of a product relative to ones income, the higher the elasticity
    Luxuries versus Necessities
    the more that a good is considered to be a luxury rather than a necessity, the
    higher the elasticity
    Switching Cost

    Introduction

    Price Elasticity of Gold

    Other Elasticity of Gold

    Inference

    Relative Elastic Demand: Change in demand > Change in price , Ed > 1.


    Relative Inelastic Demand: Change in demand < Change in price , Ed < 1.

    Unit Elasticity: Change in demand = Change in price , Ed = 1.


    Perfectly Elastic Demand: Change in demand >> Change in price , Ed = .
    Perfectly Inelastic Demand: Change in demand << Change in price , Ed = 0.

    Introduction

    Price Elasticity of Gold

    Other Elasticity of Gold

    Inference

    Price elasticity of Demand for Gold from Q108 to


    Q410
    Quarter Year

    Q108
    Q208
    Q308
    Q408
    Q109
    Q209
    Q309
    Q409
    Q110
    Q210
    Q310
    Q410

    Quantity
    Price ($US bn) demanded (in Price Elasticity
    thousand tons)
    450
    521
    672
    548
    329
    431
    490
    511
    521
    422
    541
    575

    13.4
    15
    18.8
    14
    9.6
    12.8
    15.1
    18.1
    18.6
    16.3
    21.3
    25.3

    NA
    0.76
    0.87
    1.38
    0.79
    1.08
    1.31
    4.64
    1.41
    0.65
    1.09
    2.99

    Price elasticity of Demand for Gold from Q108 to


    Q410

    Price and Demand for Gold from Aug'13 to Aug'14


    Month

    Price (INR)

    1-Aug-14
    1-Jul-14
    1-Jun-14
    1-May-14
    1-Apr-14
    1-Mar-14
    1-Feb-14
    1-Jan-14
    1-Dec-13
    1-Nov-13
    1-Oct-13
    1-Sep-13
    1-Aug-13

    28760
    27815
    27847
    26899
    28887
    28536
    30090
    29462
    28422
    30236
    29793
    30425
    32989

    Quantity demanded
    (in tons)
    1080
    1050
    1074
    857
    960
    949
    1040
    990
    936
    1090
    1005
    1108
    1145

    Source: http://www.investing.com/commodities/gold-historical-data?cid=49776

    Demand trend for Gold from Aug'13 to Aug'14


    Period
    1-Aug-14
    1-Jul-14
    1-Jun-14
    1-May-14
    1-Apr-14
    1-Mar-14
    1-Feb-14
    1-Jan-14
    1-Dec-13
    1-Nov-13
    1-Oct-13
    1-Sep-13
    1-Aug-13

    Quantity demanded (in tons)


    1080
    1050
    1074
    857
    960
    949
    1040
    990
    936
    1090
    1005
    1108
    1145

    source: http://www.gold.org/supply-and-demand/gold-demand-trends

    Price elasticity of Demand for Gold from Aug'13


    to Aug'14
    Quantity demanded (in
    tons)
    1080
    1050
    1074
    857
    960
    949
    1040
    990
    936
    1090
    1005
    1108
    1145

    Price (INR)
    28760
    27815
    27847
    26899
    28887
    28536
    30090
    29462
    28422
    30236
    29793
    30425
    32989

    Coefficient of Elasticity
    -

    0.415764465
    4.47518479
    5.688049594
    2.354947756
    1.576664201
    2.369394583
    1.694256757
    0.942350472
    1.559021315
    6.721141111
    8.209610849
    1.121289997

    Income elasticity of gold:


    - With increase in income, demand of gold also increases
    Cross-price elasticity of gold:
    - Silver is the most preferred substitute goods
    Advertisement elasticity:
    - Quantity of gold is not impacted by the advertisement

    Snob effect

    Expectation of Future price


    Huge number of buyers
    The most preferred investment vehicle

    Introduction

    Price Elasticity of Gold

    Other Elasticity of Gold

    Inference

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