Key factors in determining the price of silver using supply and demand analysis

2021-07-15 08:11:18
7 pages
1874 words
University of Richmond
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Supply is an essential concept in economics that refers to the entire quantity of a particular service and or commodity that is available to consumers for consumption. Supply may describe the amount obtainable across an array of costs or as at a particular price and at a given time. On the other hand, demand defines the volume of a good or service that consumers are willing and able to purchase as at a particular price during a specified period. Price and quantity demanded give rise to a demand curve which portrays the relationship between these two fundamental factors. Demand is constrained by the willingness of the consumer to purchase and capability of the purchaser to pay for the good or service as at the required special price. With all other factors held constant, the supply delivered by producers increase if the price rises as firms aim to achieve maximum profits. Supply and demand interact constructively in a modern economy setting to determine prices, and quantities supplied and demanded.

Silver is a precious element, and it keeps appreciating in value. Though it is a naturally occurring metal, silver remains scarce as compared to other native metals even though it is more abundant than gold. Silver demonstrates the highest reflectivity, electrical conductivity, and thermal conductivity when compared to other metals. As a result, it has a high economic value similar to gold and platinum. Apart from means of storing wealth due to its appreciating value silver is widely used in the production of jewelry, currency, and ornaments.

According to Marshall (2013), Price describes the quantity of remuneration or preparation given by a person or entity to another for the acquisition of ownership of goods or the receipt of specific services. Price may also be defined as the volume of currency for which a commodity is sold or the value that will procure a finite quantity. Supply and demand conditions determine prices. If supply is less than demand, it will result in higher prices but if supply is greater than demand the prices will, therefore, be slight. Price forms the backbone of a commercial transaction, and a contract may fix it, it may be left to be determined by or decided upon a formula at an anticipated date, or negotiated during transactions amongst the entities involved.

In a corporate setting, the price of silver is determined by three main factors. First and foremost, the amount a buyer is willing to pay. Secondly, the value a seller is prepared to accept, and the third factor revolves around the amount the competition is charging on the same commodity. It is a criminal offense to engage in price fixing. Price fixing is the manipulation of prices in collaboration with other suppliers that may result in the giving of a misleading indication of price. For example, charging for items that were not included in the quoted price or advertised list.

Based on price, utility and personal preference, each particular commodity or service will have its supply and demand patterns. If people demand a product and are able and willing to pay more for it, manufacturers will add the amount they supply. As the supply upsurges, the price will plummet given the same level of demand. Markets will be at the point of equilibrium only where the supply is equivalents to the demand for a certain level of price. At this point, there is neither excess supply nor shortages. That is, consumer utility and producer profits are maximized. However, the following factors act as determinants of silver prices.

US dollar stability.

The strength of the dollar is a critical factor that is used to determine the prices of precious metals. The silver market price in the market will be low if the dollar is high. Resultantly silver prices tend to rise if the dollar is weak. The US dollar is an exchange medium that is globally recognized and therefore when the dollar deteriorates most of the investors start selling their currency and buy gold due to security reasons

The Central bank and the mining companies.

The central banks of various states and the mining companies are primarily responsible for holding the vast reserves of gold. They acquire these large reserves through the buying and selling of gold and silver and thus determine the overall economic situation and the movement of currency. They identify the prices at which they are going to sell their gold or silver due to the large amounts they are trading in. When there are numerous transactions in any of these bodies, it means that there are far-reaching deviations in the values of precious metals. The silver price in the market is low if silver reserves are high and the silver price in the market is great if silver reserves are small. The worlds silver reserves are shrinking progressively. Therefore, prices may eventually skyrocket.

Supply and demand.

If entities and individuals are vigorously acquiring silver, the market price will rise. On the other hand, the market price will decrease if the acquisition of silver reduces. Industrial demand for silver for use in appliances such as smart phones and computers is increasing. Silver is used expansively in the electricity markets as it is highly conductive. It affects the price of silver and silver coin melt values will also raise.


The economy of a country governs the price of gold or silver. The prices of silver are high when the economy is stable. When the economy is weak, it means that most investments at that particular time are giving low earnings including silver. Silver prices are directly proportional to economic performance.

Interest Rates.

Similar to the dollar strength, silver market value maintains an inverse relationship with the level of interest rates. Market conditions are reflected by the degree of interest rates. Because investments in silver are not made to get a current return, some financiers will choose for interest payments instead of a long-term appreciation of silver holdings.

Negative Externalities that may arise from excessive alcohol consumption

An Externality is a side effect or result of a commercial or industrial activity that affects other entities or parties without this effect being covered in the cost of the concerned services or commodities. An illustration of an externality is that of a beekeeper where his primary motive for keeping bees in a bee yard is to acquire honey and other products that the hive products such as royal jelly. Bees are also agents of pollination this an added advantage to a farmer and may be termed as a positive externality.

The external benefit is also known as the external economy, beneficial externality or positive externality is the positive effect an action or process impose on an unrelated third party. It occurs either on the consumption side or the production side. Examples of positive production externalities include increased ease of access to local businesses due to the building and operation of a manufacturing firm. Other beneficial externalities are the creation of more market values for properties in the neighborhood because of an individual who start up a business or businesses dealing with beverages. Also, such area may benefit from greater economic yield, a decreasing rate of unemployment and building of more social amenities.

However, negative externality also known as an external diseconomy or an external cost is a commercial activity that levies an adverse effect on a separate and unrelated third party. It can arise either during the consumption or production of a commodity or service. For example, pollution is characterized as an externality because it levies costs on individuals who are "external" to the manufacturer and end user of the polluting merchandise. In the beverage industry, alcohol is ranked as one of the most widely used recreational drink in the world. An alcoholic beverage or drink is a beverage that contains a significant amount of ethanol. Excessive alcohol consumption may be described as the intake or use of a quantity of alcohol that is more than is normal or desirable levels. It is immoderate drinking or drinking beyond the proper limit or degree. Alcohol is used for its psychoactive effects without medical rationalization or justification. Alcohol changes the running of the brain and results in mood, perception, consciousness alteration or changes in stances.

Externalities from excessive alcohol intake are imposed upon other individuals and society as a whole rather than the persons that have chosen to drink. Numerous negative externalities may arise from excessive alcohol consumption such as irrationality, public spending, crime, diseases, and production losses (Adhikari, 2016). Also, other effects include alcohol-related traffic accidents, victimization due to alcohol such as suffering verbal and physical abuse and increased utilization of health care. Furthermore, excessive drinking may also cause losses in productivity in the labor market, increases in costs of health attributable to alcohol, partner or child neglect or abuse, crime and sexual activity that is unsafe.


Rationality does not apply when there is drunkenness or addiction. Excessive alcohol consumers show time inconsistency between decisions, for example, when they go into a bar to have two bottles, as an outcome of the resulting euphoria change their minds and drink more than two, regretting the change of mind the following day. When drunk individuals are described as having diminished reasoning and therefore may engage in behavior that they would normally not necessarily participate. For example, the verbal and or physical abuse of others.

Public Spending

A significant sector that incurs additional spending is the area of health. The government needs to invest more resources into health in catering for the negative externalities of excessive alcohol consumption. It includes investing in the prevention and management of alcohol addiction. Moreover, surplus premiums are paid by other clients in an insurance company to cater for costs incurred by drinkers such as the cost of treating health complications caused by excessive drinking. Furthermore, the whole community incurs expenses in the repair of social amenities damaged due to the physical and or mental incapacitation of drinkers when under the influence. For example, the costs of repairing roads damaged by drunk driving.


Lai and Yu (2014) propose four models to explain for alcohol associated crime: First and foremost the economic means model where one engages in crime to facilitate alcohol usage. Here an individual uses crime as a means towards an end. That is, the consumption of alcohol is the addicts ultimate goals. Secondly, the pharmacological model whereby alcohol intoxication encourages the commission of delinquencies that would otherwise not have been committed. Alcohol affects the reasoning capacity of its users. Drunkards may be more willing to engage in illegal and unsafe activities when intoxicated. Thirdly, the systemic model relating to the unlawful economy such as the illegal brewing of alcohol. Lastly, the substance-defined model. Actions are defined as being illegal by rules which control drug use. For example driving when drunk.

Crime causes social costs, both directly and indirectly. Damage to property and injuring of persons are examples of direct costs while policing and the maintenance of justice and correctional activities are examples of indirect costs.


Alcohol affects the health of third parties in addition to affecting the health of its users. Pregnant women are expected to maintain nutritious diets and healthy lifestyles for the well-being of their unborn babies. If a pregnant mother acts contr...

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