What aspect of commodities is primarily affected by "demand shocks"?

• A. Supply stability
• B. Market competition
• C. Price levels
• D. Transportation costs

Answer: (C)

The aspect of commodities that is primarily affected by "demand shocks" is price levels. A demand shock occurs when there is a sudden increase or decrease in the quantity of a commodity that consumers want to purchase at a given price. This shift in demand can lead to significant changes in market price levels.

For instance, if there is an unexpected surge in demand for a particular commodity, such as oil, the increased competition for that limited supply will drive up prices. Conversely, if a demand shock results in a decrease in consumer interest or purchasing power, prices may fall as sellers adjust to the new market conditions to clear their excess inventory.

While supply stability and market competition are also important in the commodities market, they are influenced by demand as well but do not directly reflect the immediate impact of demand shocks in the same way that price levels do. Transportation costs can be affected by market conditions, but they are more related to logistical and operational factors rather than direct demand fluctuations.