What Is Price Volatility?

Price fluctuation is a phenomenon in which prices rise and fall due to the relationship between production costs and supply and demand. Commodity prices are made up of the cost of producing goods and profits and taxes. Price formation is also affected by supply and demand conditions. Because product production costs and market supply and demand are constantly changing, this determines that prices often fluctuate up and down, and cannot be fixed. Price fluctuations have a certain regularity. Generally speaking, when production costs fall more or supply exceeds demand, commodity prices will fall; on the contrary, when production costs rise and supply exceeds demand, commodity prices will rise. The basis of price is value. Price always moves around value, so there is a limit to the price fluctuation. Under normal circumstances, a rise in price will stimulate an increase in supply while suppressing demand, so after the price rises to a certain level, it will stop rising and may even fall; on the contrary, a decline in price will stimulate demand and suppress supply. Therefore, after the price drops to a certain level, it will stop falling and may even rise. These fluctuations in prices form a mechanism that automatically adjusts the balance between social supply and demand, and the balance between production and consumption. ^[1]

Price fluctuation

Right!

Price fluctuation is a phenomenon in which prices rise and fall due to the relationship between production costs and supply and demand. Commodity prices are made up of the cost of producing goods and profits and taxes, and price formation is also affected by supply and demand conditions. Because product production costs and market supply and demand are constantly changing, this determines that prices often fluctuate up and down, and cannot be fixed. Price fluctuations have a certain regularity. Generally speaking, when production costs fall more or supply exceeds demand, commodity prices will fall; on the contrary, when production costs rise and supply exceeds demand, commodity prices will rise. The basis of price is value. Price always moves around value, so there is a limit to the price fluctuation. Under normal circumstances, a rise in price will stimulate an increase in supply while suppressing demand, so after the price rises to a certain level, it will stop rising and may even fall; on the contrary, a decline in price will stimulate demand and suppress supply. Therefore, after the price drops to a certain level, it will stop falling and may even rise. These fluctuations in prices form a mechanism that automatically adjusts the balance between social supply and demand, and the balance between production and consumption. ^[1]

Chinese name

Price fluctuation

content

Price is the monetary expression of the value of a commodity. The value of a commodity is the abstract human labor condensed in it. The value of a commodity is determined by the socially necessary labor time to produce it. Commodities are exchanged based on their value. In accordance with the principle of equivalent exchange, the price is required to meet the value. However, in each specific exchange process, the two are not always consistent. Commodity prices are affected by many factors, especially by supply and demand. The price conforms to the value, which is conditional on the balance between supply and demand of the commodity. Under the dominance of competition, the supply and demand of commodities are constantly changing. Therefore, prices and order values are often inconsistent.

When supply exceeds demand, the price is lower than value, and when supply exceeds demand, the price is higher than value. Prices fluctuate around value. Price fluctuations are governed by the law of value, Marx said: "No matter how the prices of different commodities are initially determined or adjusted to each other, their changes are always governed by the law of value."

The magnitude of price fluctuations is always constrained by value and will not be too far apart. Moreover, from a longer period of time and from the perspective of society as a whole, prices above or below value cancel each other out. In general, the total price and value of goods are still equal. Therefore, price fluctuations are not just a negation of the law of value, but also a manifestation of the action of the law of value. Engels said: "The constant departure of commodity prices from the value of commodities is a necessary condition. Only through the fluctuation of competition and thus the fluctuation of commodity prices can the value law of commodity production be implemented and the necessary labor time of society to determine the value of commodities become reality."