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0 pointszozbot2346y ago0 comments

Nope, tradable goods don't just become "more expensive" because of currency shifts. The prices of tradables are set in a global market and tied together by cross-trading (arbitrage) considerations. What happens when supplying a desirable product is that the industry seeks to expand and that might increase costs overall. The Dutch Disease is an extreme version of this, in which having a single dominating industry sector leads to e.g. bad governance, etc. But these are real effects that are unrelated to currency shifts.

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4 comments · 2 top-level

ergothus6y ago· 2 in thread

My economics is weak, can you break this down for me a bit?

If I'm selling widgets for $10 (USD), and Narnia wants to buy them at 2 Narnian gold pieces(gp) per USD, it would cost them 20gp each.

If the USD "improves", such that it is now 4 gp:$1, my widgets would be 40gp each, making my goods "more expensive" to foreign countries like Narnia.

Assuming you're correct, I have at least one flawed understanding above (entirely likely). Can you explain which assumption that is and why?

Thanks in advance!

martin_a6y ago

The important question is: Does Narnia have the money, or is it willing to spend, double the amount on your product? Maybe they will just buy half, because their budget is fixed. That's the point you are missing.

ergothus6y ago

....I fail to understand the relevance of what you're saying.

A desirable good is still less value/money if the money cost increases. That's what we've been discussing in this thread. Now you're changing other variables?

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skybrian6y ago

It sounds like you might be talking about commodities, but that's not every market. For goods manufactured and largely consumed in one country, currency shifts do quite mechanically make foreign prices cheaper or more expensive, assuming they are still sold for the same price domestically.

(Though, the price might not change right away depending on long-term contracts and whether the manufacturer decides to take profits or accept a lower profit margin.)

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