Demand and Supply in the Copper Industry
Read Case: Demand and Supply in the Copper Industry (p. 17). • Prepare a short paper to show the impacts of the events in the case on the price and quantity of copper. • Clearly distinguish between changes in demand and supply and changes in the quantity demanded and quantity supplied. Use the facts in the case, material in chapter 2, and supply and demand curves. Read case on p. 87, Ch 4 Prepare a short paper in response to discuss the meaning or implications of using new technology to understand and impact customer.
Economic Case Studies
Distinction Between Changes in Demand and Supply
Changes in demand and supply are influenced by the factors of these market forces. In the year 2011 February, Copper realized a historic rise on its price per pound. Historically, the price of Copper had never hit $ 4.62, as was witnessed in this particular time. As a result of this, it was expected that the price would rise even further. As a result of this, the demand for copper rose (Wang et al.,2019). However, the insatiable speculated demand in China was diluted by the high interest rates which compelled the suppliers to sell their reserves to save themselves from the rising rates. The consumers also kept their inventories so as to save capital. It was further discovered that China had its own reserve at its storehouse. As a result of this the supply in the market was maintained at a considerable level. In essence, the global market faced no shortage in supply as the high demand was balanced by enough supply from China.
In 2011 April, it was feared that the demand for Copper would considerably reduce, as a result of market price increase. This would in effect make the prices to fall. Fortunately, the unfavorable economic conditions in the United States, as well as the high inflation rates made the demand to balance hence stabilizing the demand and price thereof (Wang et al.,2019). In September the same year it was feared that the supply of Copper would be affected by the breakdown of Copper Plant in Chile, coupled with copper market volatility in Europe. The earthquake in 2010, was marked by market analysts as one of the factors which would affect the supply of copper in the market. Human behaviors such as theft of copper coils can also affect the supply. The increased demand of Copper in the year 2008 particularly by China whose industries were progressively increasing also caused a rise in price. on the need by customers, while supply focuses on availability. In essence, demand supply is purely affected by movements along the demand curve (Aspromourgos, 2019).
Quantities Demanded and Supplied
Unlike supply and demand, which purely depend on the demand and supply laws, quantities supplied and demanded rely on another concept known as price elasticity of demand and supply. Price elasticity of demand is the responsiveness of the quantities demand to the variation in price (Beggs, 2013). Price elasticity of supply on the other hand, is the responsiveness of the quantities supplied, due to variation in price. These leads to shifts in demand supply curves, and not movement along the demand supply curves, as in the case of demand and supply. Shifts can either be outwards (expansion), denoting an increase in demand and supply, or inward (contraction), denoting a reduction in demand and supply. In the year 2006 and 2007, analysts predicted that the quantities of Copper supplied in the global market would drastically reduce. This according to them would be due to the strikes that were existing in the various companies manufacturing copper. The supply of copper, according to the market analysts would be strained further by the economic growth in China which would require more copper supply for their growing industries. As a result of this, there would be shifts in demand and supply curve of copper.
The earthquake event also would influence a shift in the demand and supply curve., assuming that the demand level remained the same, while supply reduced due to the adverse effects. A simultaneous variation in the factors of demand, such as supply and natural factors would make the demand curve to shift. This is known as elasticity, which focuses on quantities and not movement along the curve. The financial crisis which took place in the year 1997, increased uncertainty of copper demand in china and an increase in the demand for copper in the North America, also made the demand to shift. Due to the crisis, most suppliers speculated that the price would fall even further, hence causing a shift in demand. The shift in this case was a contraction i.e. a drastic demand and supply reduction.
Impact of Technology on Customer
Technology is defined as the technical knowhow, which makes the level of productivity to rise. Technology is known for improving the quality of the products or the finished products, hence increasing the level of satisfaction, or else the utility that a customer derives out of a product (Neha,2019). New technology is therefore, a new input or technical skill which is meant to ensure that the level of productivity is enhanced. New technology can only be attained through investment in research and technology. This means that technology have an effect in the production equation. This is due to the fact that it has an influence on both capital and labor. The production equation in in a case where technology exists is as follows;
Y=A Kσ Lβ
Y = Output
Kσ = Capital
Lβ = Labor
From the above equation, it is evident that technology which has been introduced in the production equation can be traced from the final product. This means that it must have an affect on the final cost of production. The cost of production is usually borne partly with the producer or supplier and partly the consumer of the final products. As such, introduction of technology, or technical knowhow will have an effect of increasing the price of goods. The cost or burden of quality increase will therefore be borne both by the customers as well as the producer. In most cases, the consumers will be the one to bear the highest cost. In order to ensure that the customer’s burden and that of the producer are fully balanced, the marginal costs and marginal revenue equations are used (Neha ,2019).
Marginal cost is the increase in cost of production as a result of increasing the level of output by one more unit. Marginal revenue on the other hand, is the increase in revenue as a result of increasing the output by one more unit. According to Neha (2019), the profit is maximized at a level in which the marginal cost and marginal revenue are equal. This point is then used to derive the price payable by customer or the consumers price. Other than increasing the cost of the final product, technology also has an effect of empowering the customer, by giving them proper information concerning the quality they expect out of a product. As such, consumers end up putting pressure on the producer to ensure that their products meet the consumers expectation. This pressure is also passed to the very consumers in terms of price as has been mentioned above. These are the main impacts of technology on customers.
Aspromourgos, T. (2019). What Is Supply-and-Demand? The Marshallian Cross Versus Classical Economics. Review of Political Economy, 31(1), 26–41.
Beggs, J. (2013). The relationship between revenue and price elasticity of demand. About.com. Economics, Retrieved from http://economics.about.com/od/elasticity-category/ss/The-Relationship-Between-Revenue-And-Price-Elasticity-Of-Demand.htm
Neha Gupta. (2019). Retail Banking: Impact of Technology-based Service Quality Dimensions on Customer Satisfaction. Annals of Dunarea de Jos University. Fascicle I : Economics and Applied Informatics, 25(2), 20–26.s
Wang, E., Butt, H., & Bera, R. D. (2019). Global Copper Wrap: Shanghai premium narrows on tighter supply; European, US markets flat. Metal Bulletin Daily, N.PAG.