The world price of copper - Essay Example

In fact, the trade of copper began prior to the Bronze Age when Cyprus began to receive copper objects from Egypt for cuneiforms purposes. In Ancient Greece, copper has been used for architectural work and currency development while the demand for better material due to technical developments and emergence of stamping press have raised the need for copper during Industrial Revolution. Indeed, the rise of copper usage is seen dramatically as Bronze Age entered because copper has been used for several purposes.

From Industrial Revolution up to the Contemporary Era, the figure below showed the worldwide changes in the prices of copper from year 2004 to 2011. From a price of $2,424 in January 2004, the price of became high amounting to $8,046 in May 2008. However, price rates fell rapidly to $3,072 in December 2008 and somewhere in 2010. With these data, one might ask “What drives the changes in the world price of copper? What are the reasons for the increase in world price of copper? What are the reasons that made the price of copper low?

” To answer the questions above, let us examine factors that may affect the price of a product – a perfect example of which would be the law of demand and supply. This could be illustrated in the table below: To guide you in understanding the figure, the horizontal line (Q) in the left figure refers to the number of quantity being demanded while the vertical line refers to the price of the product. In this paper, let us use copper to refer to the product; whereas on the right figure, it represents the relationship between quantity and price using arrows.

According to Mankiw (2012), the law of demand states that as the price of the good falls, the quantity demanded rises; whereas, the law of supply states that as the price of the good rises, the quantity also supplied rises (p. 85). These relationships with price explain why the demand curve slopes downward and the supply curve slopes upward. In addition, the arrow representation of the law of demand is seen on the right figure above. Let us apply the law of demand and supply to the worldwide changes in the prices of copper from year 2004 to 2011 (refer to the figures below).

From year January 2004 to May 2008 (period of worldwide increase in copper), assumptions derived from the law of demand and supply will lead to hypotheses that the quantity of copper being demanded must have decreased or the quantity of copper being supplied must have increased for its worldwide price to escalate. Meanwhile, the reverse phenomenon in which the quantity of copper being demanded must have increased or the quantity of copper being supplied must have decreased since December 2008 for its worldwide price to de-escalate.

To prove our hypotheses, let us take a closer look at the copper market. As stated earlier, copper has been of major importance to the metal industry and its prices are largely determined by the interaction of demand and supply. Thus, it is essential to allocate resources equally to attain state of equilibrium or balance. In the year 2003 to 2008, the need for copper increased dramatically as China, India, and other Asian countries accumulated supplies for structural reasons (Lipsey and Chrystal, 2007, p. 151). After 2008, world market price of copper began to collapse