"Soaring gold prices have generated a favourable taste for designer silver ornaments among the middle class society"- Business times report.
Analyse the above statement with the help of an economic theory and explain its impact on the market of silver ornaments (6 marks)
Dear Student
Gold and silver are both precious metals and can be treated as close substitutes even if not perfect ones . In the middle class society demand for gold is quite elastic . As gold prices are soaring higher than silver people are substituting silver ornaments for gold . This phenomenon can also be termed as the elasticity of substitution of gold and silver is quite high . In the silver market demand for silver rises and supply is also expected to rise . But if this excess demand in silver market cannot be met with sufficient supply then there can be an inflationary pressure which will make the price of silver to rise .
Regards .
Gold and silver are both precious metals and can be treated as close substitutes even if not perfect ones . In the middle class society demand for gold is quite elastic . As gold prices are soaring higher than silver people are substituting silver ornaments for gold . This phenomenon can also be termed as the elasticity of substitution of gold and silver is quite high . In the silver market demand for silver rises and supply is also expected to rise . But if this excess demand in silver market cannot be met with sufficient supply then there can be an inflationary pressure which will make the price of silver to rise .
Regards .