Determinants of Reserve price
- Degree of durability of the commodity. The higher the degree of durability of the commodity, the higher the reserve price and the more perishable the commodity is the lower the reserve price.
- Cost of production. The higher the costs of production, the higher the reserve price and the lower the cost of production, the lower the lower the reserve price.
- Degree of liquidity preference. Liquidity preference refers to the extent to which individuals prefer to hold their wealth in cash or near cash form instead of investing it in alternative assets. The higher the level of liquidity preference, the lower the reserve price and the lower the level of liquidity preference, the higher the reserve price.
- Future price expectations. When the seller expects the price to increase in future, he fixes a high reserve price but when the seller expects the price to fall in future, he fixes a lower reserve price.
- Degree of necessity of the commodity. The higher the degree of necessity, the lower the reserve price and the lower the degree of necessity, the higher the reserve price.
- Quality of the commodity. The higher the quality of the commodity, the higher the reserve price and the lower the quality of the commodity, the lower the reserve price.
- Level of storage expenses. The higher the storage expenses, the lower reserve price and the lower the storage expenses, the higher the reserve price.
CATEGORIES Economics
TAGS Dr. Bbosa Science
