chapter  5
11 Pages

The economics of storage

Chapters 2 and 3 covered transforming the physical form of a product (like turning oranges into orange juice), while chapter 4 explained the economics involved in interregional trade, which is the transformation of the physical location of a product. Now, we turn to the analysis of storage. Storage allows us to transform the timing of the sale and consumption of a product. As should become apparent as we move through this chapter, the mathematics and graphical representations of optimal storage policies are very similar to those earlier types of transformations. The possibility of storage simply presents the seller of a product with two possible markets to sell in: the market right now and the market at a later date.