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International Price Escalation - Essay Example

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The world economy is changing at a faster pace these days. Due to the introduction of new technology, advanced production methods and expensive factors of production, the global economy is elevating at a higher level too…
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International Price Escalation

Download file to see previous pages... The rise in the prices of all these commodities started in the year 2006, when the international markets faced a steep hike in the prices of all the eatables around the globe. This essay shall discuss the concept of price escalation along with its causes and the course to be taken to improve it. Price Escalation According to the definitions given by the economists, the concept of price escalation refers, more or less, to the concept of inflation in the economy. It is defined as the tendency and ability of prices to reach the supernormal heights when the products are being marketed. Taking this concept further, international price escalation occurs when the goods are particularly being marketed internationally. The companies, due to the affects of escalation, the companies normally engage their activities and resources in re positioning and establishing their brand overseas (ECLAC, 2006, Online). The major causes that contribute to such price hikes include import duties, trade barriers, added transport, warehousing and freight costs, insurance, international lawyer’ charges, and other necessary charges. Causes There are various causes for the price escalation of the commodities on international level. There may be many imbalances between the demand and supply side of the products and services which causes prices to rise globally without any assurance of coming down \again. More clearly, these causes include: Structural Factors The structural causes of the global price hike include: Rise in the cost of production The implication of the price rise is possible due to the fact that the oil resources are decreasing and getting scarcer with the passage of time. The consumption patterns have been shifting and though, the newer technology is deployed to increase the efficiency but the economic crunch and recession has brought further obstacles. This, in turn, has impacted the prices of food and other bi-products of oil to increase thus, giving shocks to the prices of the related products (Dessus & Hoyos, 2008, Pp. 201). Change in consumption patterns in various countries and sustained rapid growth One of the major reasons for the international price escalation is the change in consumption patterns and trends of the population in various countries. The growing economies such as India and china account for the changing consumption trends of various products. One of the contributing factors to this structural spiral is the continuous expansion and thus, growing demands for the foods and services in various countries (Dawe, 2008, Online). Moreover, the translation of growing economies has increased the per capita income of the consumers, and so they are capable enough to improve their standards of living. This has helped push up the demand of the consumption baskets with higher rates (Dasgupta & Serageldin, 2000, Pp. 111). Temporary Factors The temporary factors accounting for such price escalation include the following: Natural disasters and poor weather The world has experienced bad weather, natural disasters and other avalanches which results into the inevitable damage of the natural products. These adverse events have resulted into an extreme rise in the prices of natural products such as wheat, rice, cotton and other crops (Temple & Johnson, 1998, ...Download file to see next pagesRead More
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