Appreciation - Term Overview

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The concept of appreciation explains the increase in value experienced by a good or service due to a series of external factors.

The variations in terms of value that the appreciation entails can occur responding to multiple factors or external circumstances, as well as the nature of the market or the territory under study.

Most of these causes have to do with changes in the supply or demand for that particular product. The motivations can range from following trends and fashions, the appearance of substitute goods, situations of sudden shortages or difficulties in production, etc.

Conceptually, this phenomenon is the opposite of depreciation, whereby the value of a certain asset is reduced.

Why can a product be appreciated?

Product value increases respond to a series of defining features that should be highlighted:

- They can be temporary and anecdotal or stay for a longer period of time.
- Nature or composition of the property. A simple example is the use of rare minerals in the production of electronic components, such as lithium.
- In general terms, the appreciation results in reductions in demand, since at higher prices fewer consumers have access to the good.
- There are certain types of goods that serve as an orientation of economic well - being, such as oil. In terms of currencies, there would be the dollar or the euro
- This economic concept is likely to appear in non-perishable products, since they obviously have a longer useful life. In this sense, the passage of time can provoke appreciation, as happens with works of art, antiquarian goods or old stamps and coins.

Appreciation in the monetary sphere

A noteworthy aspect of the concept of appreciation refers to the monetary and foreign exchange sphere. The appreciation of a certain currency usually appears when studying its relative comparisons with others.

In other words, in the field of currency conversions the study of relative appreciations is very common, thus being a way of analyzing the evolution of these markets in a situation of fixed exchange rates.

The fact that a currency appreciates normally implies increases in imports in a country, since external products are used in lower value currencies in search of profitability. There are monetary policies aimed at this type of trade balance effects.

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