How do supply shocks and demand fluctuations affect rough diamond prices?

• A. Both can push prices up.
• B. Demand fluctuations do not affect prices.
• C. Supply shocks only reduce prices.
• D. Markets are perfectly inelastic.

Answer: (A)

Price in rough diamond markets responds to changes in supply and demand. When a supply shock tightens the availability of rough diamonds—say a mine outage or export restriction—the stock becomes scarcer relative to demand, and buyers compete for fewer stones, pushing prices up. On the demand side, an uptick in buyers' interest—driven by jewelry trends, economic growth, or investment demand—means more bids for the same supply, which also raises prices. Because either tightening of supply or stronger demand can lift prices, both factors can push prices upward. The other statements miss the reality of market dynamics: demand shifts do affect prices, supply shocks can move prices up or down depending on direction, and markets for rough diamonds are not perfectly inelastic.