6.1.3. Impact of Government Policy on Supply and Demand
Government policies and programs have a major impact on the commodities market. The supply of money in the overall economy is managed by the Federal Reserve Board through its monetary policy and by Congress through fiscal policy. Since the 1930s, the federal government has boosted the price of certain commodities and lowered others through a variety of programs. It has paid farmers to reduce their acreage in some products (wheat) and provided direct price supports for others (corn). Its programs have encouraged the export market by providing loan guarantees to countries that buy U.S. products and by subsidizing high cost exporters to reduce their prices (cotton). The Agricultural Act of 2014 has eliminated many of these programs, expanded others, and created new ones. A fundamental analyst must always be aware of these programs and their likely impact on supply and demand. Finally, tariffs, which are taxes on imported goods used to raise their price in domestic markets, are set and periodically revised by the federal government.
|
Influences of Demand |
||
|
Factor |
Demand Increases and Price Rises |
Demand Decreases and Price Decreases |
|
Population size |
Population grows |
Population declines |
|
Consumer tastes |
Consumers desire more of product |
Consumers desire less of product |
|
Disposable income |
Disposable income increases |
Disposable income decreases |
|
Consumer expectations of future prices |
Consumers expect prices to rise in the future |
Consumers expect prices to fall in the future |