THE Chapter 18.1) The price of gold-today, yesterday, and throughout the year.

F
ind the latest price of gold. Compare the price to the price at the beginning of
the day. What was the highest price during the last twelve months? The lowest p
rice? Assume the price fluctuations observed resulted exclusively from changes i
n demand. Would the observed price changes have been greater or less if the gold
supply had been elastic rather than inelastic?

The price of gold is quite volatile, sometimes shooting upward one period and pl
ummeting downward the next. The main sources of these fluctuations are caused by
consumers. The demand for gold is partly derived from the demand for its uses,
such as jewelry, dental fillings, and coins. But people demand gold as a specula
tive financial investment. They increase their demand for gold when they fear ge
neral inflation or domestic or international turmoil that might undermine the va
lue of currency and more traditional investments. They reduce their demand when
events settle down. Gold production is a costly and time-consuming process of ex
ploration, mining, and refining. Moreover, the physical availability of gold is
highly limited. For these reasons, increases in gold prices do not elicit substa
ntial increases in quantity supplied. Conversely, gold mining is costly to shut
down and existing gold bars are expensive to store.

The latest price of gold at the close of market on March 19, 2008 is 942.90 USD
per ounce. The price at the beginning of the day was 985.60 USD per ounce. The h
ighest price during the last twelve months was 1002.80. The lowest price was 641
.80. Gold is inelastic because of the great demand for it. Gold is used in many
industrial applications such as electronics, dentistry, electroplated coating, f
unctional coating, medical materials, and enamel colors for tableware, arthritic
treatment and brazing alloys (Corti, 2003). Gold in the short run is inelastic.
Gold does have many substitutes in the manufacturing industry. . (McConnell, Br
ue, 2008).With the U.S. dollar losing value speculators are placing more demand
on gold. The dollar is based on the financial strength of the United States whil
e gold is its own value and does not need backing from the stability of a countr
y. If gold had been elastic instead of inelastic, the price would be less. Curre
ntly, gold is inelastic which represents unresponsiveness to price changes. The
change in quantity is less than the change in price or inelastic. If the demand
is elastic consumers will be responsive to price change. The change in quantity
will be greater than the price