Price scissors

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The price scissors is an economic phenomenon when for a certain group or sector of productive population the overall valuation from their production for sale outside this group drops below the valuation of the demand of this group for goods produced outside the group after a period of reasonable equilibrium. A typical example is when changing world price levels cause a country’s exports to plummet in value, while the valuation of its imports remains relatively stable. For more information on global imports please refer to this guide global imports.

This phenomenon draws its name from a graphical illustration of its effects over time. Plotting time on a horizontal axis against price level on a vertical axis, with agricultural prices and industrial prices shown in two separate curves, the graph should appear like a pair of opening scissors.

Historically, the phenomenon has most frequently taken the form of falling prices for agricultural produce and steady prices for industrial goods. Thus, the price scissors is most devastating to countries that are net agricultural exporters and net industrial importers. Perhaps the most vivid illustration of the effects of the price scissors and its potential effects occurred in countries throughout Eastern Europe in the early 1930s.

The phenomenon is not exclusively of international scale: early Soviet Union had industry/agriculture price scissors internally, see Scissors Crisis.




References:

1.http://en.wikipedia.org/wiki/Price_scissors



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