ABSTRACT
This chapter aims to explain in more detail why commodities have been an important factor in the economic development of the region. The periodic booms and busts in commodities and the perpetual price instability are more than a nuisance to producers and consumers. In the case of Latin America, commodities are sufficiently important that changes in commodity prices can affect the entire economy. China has grown from an economically irrelevant backwater to the world’s second largest economy. The effects on the world economy have been profound. Likewise, the effects of the rise of China have been important for Latin America. Like the global oil industry, the industry in Latin America was fueled by high prices for oil caused by World War I. The chapter reviews the simple microeconomics of commodity markets. Like commodity booms and busts, commodity price volatility makes economic management in many countries more difficult.
