Economics Assignment Example | Topics and Well Written Essays - 2500 words - 1

Economics - Assignment Example Instead of closing out contracts with cash settlements, a common procedure on the commodities market, the Hunts took delivery on silver. They then stockpiled this silver and used their large cash reserves to buy up even more futures. The billions in demand triggered the rise of silver to more than $50 per ounce.† (Beattie, 2010) If speculation can have this much of an impact on the price of a fixed commodity – and the silver price plummeted when the Hunt brothers’ market corner was toppled – then the market cannot be totally reliable for an egalitarian distribution of resources. In this instance, a small minority with excess capital reserves could easily create massive market movements in price. It is the same with any commodity if a large capital interest takes hold in the sector and accumulates not from the need of supply, but based on speculation, then the aspects of banking and finance can come to determine even the price of coffee and tea. A free market based upon supply and demand and a free market fueled by speculation may not function in the same manner in determining market prices. If one reviews the ability of a group of brothers like the Hunts to move prices in silver, what could a nation-state, for example, accomplish if it were to try to monopolize a sector of commodities, or accumulate from a perception of scarcity. One example of this would be the Chinese State-owned and financed oil companies or loans being given to businesses by State-sponsored banks to buy commodities like copper, driving up the price. Q.2 - In free market economics, government interference and influence in the economy is rejected, in favor of the pure dynamics of supply and demand being determinant in driving prices, investment, capital flows, and other aspects of trade, manufacturing, and business activity. In this theory, the market operates naturally and