Appreciation – Definition, what it is and concept

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

Variations in terms of value that involve appreciation may occur in response to multiple external factors or 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 offer wave demand existing for that particular product. The motivations can range from following trends and fashions, the appearance of substitute goods, situations of sudden shortage or difficulties in production, etc.

Conceptually, this phenomenon is the opposite of depreciation, whereby the value of a given good is reduced.

Why can a product be appreciated?

The increases in value in products respond to a series of defining features that should be highlighted:

  • They can be temporary and anecdotal or remain a longer period of time.
  • Nature or composition of the good. A simple example is the use of scarce minerals in the production of electronic components, such as lithium.
  • In general terms, the appreciation results in demand reductions, since at higher prices, fewer consumers have access to the good.
  • There are certain types of goods that serve as guidance for economic wellness, such as oil. In terms of currencies, they would be the dollar or the euro.

This economic concept is likely to appear in non-perishable products since they obviously have a useful life higher. In that sense, the passage of time can cause appreciation, as is the case with works of art, antiques or antique stamps and coins.

Appreciation in the monetary field

A notable aspect of the concept of appreciation is related to the monetary and foreign exchange field. The appreciation of a given currency usually appears when studying its relative comparisons with respect to others.

That is, 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 foreign exchange of lower value looking for profitability. exist monetary policies aimed at this type of effects of the balance of trade.