Question

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For each of the situations, please determine whether the futures price of the commodity listed will increase or decrease Bolivia is an important producer for much of the world's lithium. Lithium is an important component in the production of lithium batteries, commonly used in many cell phones and laptop computers. If political tensions in Bolivia decrease and larger supplies of lithium are expected to be released, the price of lithium futures will likely Maple syrup is produced from the sap of maple trees. If the winter season is longer than usual and has freezing temperatures at night and warm temperatures during the day, more sap can be obtained from the maple trees Meteorologists predict an especially long winter in 2013 with the freezing nights and warm days required for the increase in sap. As a result, the price of maple syrup futures decrease. ' will likel y decrease. Assume that there is a large demand for Cuban bananas in the United States. Suppose that the President of the United States has signaled his/her intentions to lift the United States' trade embargo with Cuba within a year. In response to this new policy, the price of Cuban banana futures will Imagine that the United States Department of Agriculture announced that a new strain of avian bird flu has been discovered in several million Californian egg-laying chickens. As a result, the price of egg futures will likely not change likely ncrease.

Answer 1

In these problems, future prices are determined by the change in demand and supply forces. 1) Consider that Bolivia is the largest producer of lithium. In Bolivia, political tension reduces, and producers tend to produce more lithium. With an increase in production, the supply of lithium increases and results in the situation of excess supply at any given price. The excess supply puts downward pressure and thus reduces the future prices of lithium. Hence, the price of lithium will likely decrease. 2) When the president of the US decides to lift the trade in response to the large demand for Cuban bananas, then the supply of Cuban bananas will increase, thus the price in the future will likely decrease. Hence, the price of Cuban bananas future will likely decrease. 3) It is expected that weather conditions in 2013 will be in favor of maple trees, thus more sap of maple trees can be extracted. Since the sap of maple trees is an intermediate good for Maple syrup, the supply of maple syrup increases with an increase in sap. Thus, increasing supply will reduce the price of maple syrup Hence, the price of Maple syrup futures will likely decrease 4) In the US, the department of Agriculture announced flu in egg-laying chickens. Due to the flu, the supply of eggs will fall. With a fall in the supply, the price also increases in the future. Hence, the price of egg futures will likely increase