Engineer's Finance

I was just wondering what would happen to the value of a commodity if there was only one buyer and only one seller. I know it won’t happen with a commodity, but just a thought. Generally for any commodity there will be more than one buyer and seller.

These days the economic situation is not so good and mostly many people are not trading. If at all they are trading I am sure someone is not getting a fair price either the seller or the buyer. Whenever there are many buyers and sellers for a particular commodity then the price of the commodity will be fair. It is just that the competition between the buyers and sellers ensure that the price is fair. Commodities which are not fast moving and have considerable shelf life are not sold by the seller, they wait for the buyer.

Generally the seller depending on the need for liquidity decides the commodity to be sold to the buyer or not and also if he makes a good bargain for his commodity then he will sell it. Byers are always in look for the price that is lesser than the real value and sellers just need the opposite. What I mean by real value is, say for example the commodity such as Rice that the seller produces might cost him around Rs.1000 and he pays the laborers of Rs. 100 then the selling price of Rice is Rs.1100. This may be the real price. Why there is an uncertainty is because of the profit that the seller wants to make. I don’t deny the fact that seller should make a profit but how much is what depends on the demand for Rice.

Demand and supply plays a major role in fixing the price of the commodity even if it is with a single buyer and seller. If the seller is willing to sell Potatoes and the buyer does not want to buy them then no matter how hard the seller tries to sell, the buyer won’t buy them. There is a possibility that the buyer might buy the produce only if he thinks that after some time the prices might increase and he may get good profit.

These are just some random thoughts and I am sure the buyer and seller do have their own limitations. A seller won’t sell the produce below a certain price and similarly the buyer won’t buy the produce after a certain price level even if it is the only source.

Oil is one such resource which is not easily available at all parts of the world. It is more of one seller and many buyer criteria. People around the world want to move away from such a situation but they can’t. We all know that we can’t produce oil so we are thinking of alternative energy supplies. This is what will happen with the commodities as well. When the sellers and buyers are not in great numbers, the commodities itself will lose its importance and not many will be interested to trade in that commodity.