The Demand and Supply Aspects of Copper - Essay Example

Economics for Managers Table of Contents Part B 3 Introduction 3 Demand Factors 3 Supply Factors 4 Price Factor 5 Critical Analysis 6 Conclusion 8 References 9 Bibliography 11 Part B Introduction This essay intends to evaluate the demand and supply aspects of copper. Firstly the paper intends to elaborate on the factors that affect the demand, supply and price of copper and results to fluctuations. Copper is an important material that influences the economy to a considerable extent and has a positive as well as negative impact. Price of copper and its fluctuations in the business of a nation affects the economy considerably. In this context, it is observed that in the month of August and Dumber 2008, price of copper fell considerably by 56% however; in 2009, the price depicted a growing trend and rose 18%. Hence, a graphical representation of the price of copper is to be elaborated since 2008 to 2014 to understand the economic facets that affect the price considerably. Contextually, copper is traded in the commodity market and it is used immensely in the everyday lives of people. The fluctuation in the copper prices helps in indicating the state of the economy at large in the global platform. The price of copper is linked with various economic variables (ABN AMRO, 2014; ECORYS, 2012). In this section, the paper intends to evaluate the reasons using economic analysis for the price fluctuations and its impact. Demand Factors Firstly, demand is linked with the requirements of the consumers for a particular product. The demand theory finds a strong relation amid product requirement and price. This theory is elaborated through the help of the diagram below: It is observed that if the purchasing power is high, then the demand increases and likewise, the price get affected. Therefore, in the context of demand it can be stated that various factors affect the price of copper in the economy including the demand and supply of copper and the commodity market influences. Supply Factors Secondly, another aspect is the supply theory, which is also linked with the quantity demanded and supplied. Alteration in the price of goods such as copper also affects its supplied quantity. This is depicted through the diagram below: In relation to the demand and supply theory, it can be stated that copper depicts volatility in the market affecting its price based on the demand and supply of the commodity (Knittel & Pindyck, 2013). In this context, it is vital to state that copper is regarded as luxurious, because of its high demand and supply factor. It is a fact that copper is obtained through mining and it is expensive, because of its rare availability. However, it is easier to get recycled copper at a cheaper price, as it is attained from old and new scraps. This form of copper helps in increasing the supply, which also influences prices to fluctuate (ABN AMRO, 2014). Price Factor Price fluctuation depends upon the demand and supply aspects and also on the purchasing power of individuals. The changes in the price of copper are linked with the aspect of quantity demanded and quantity supplied and other relevant factors of economics (Moon, 2013, pp.86-120). The above analysis can be depicted with the help of the demand and supply curve as presented hereunder. Price fluctuation of copper depends on several aspects such as the industrial activities and its demand in the future years. High fluctuation in the price of copper is due to price elasticity (Gillespie, 2014, pp. 84-87; Owen, 2014, pp.100-120). Critical Analysis On the other hand, this also implies that with the rise in copper prices and demand for the industrial activity is expanding. The fluctuation in the price of copper has been depicted through a graphical representation as provided below: From the diagram, it can be observed that in the month of July 2008, the demand for copper was high and therefore, the price was at the highest. The concept of supply and demand reflected the same that with an increase in demand of a product, the price rises. Copper is a commodity and it is mainly produced in few nations making it more precious. The supply of copper is not in abundance and therefore, it can be highly priced as compared to other. In this context, during the economic turmoil, the industrial activities showed a downward trend resulting to decreasing commercialisation. This affected the price of the copper and demand as well for which there has been a shift in demand (Gillespie, 2014, pp. 39-49; Samuelson, 2005, pp. 45-65). In this context, when concerning the demand side, it was observed that in first half of 2008, the purchasing power of the consumer for copper was high. Therefore, the price of the copper was high with respect to the demand. However, due to the financial turmoil, the purchasing power reduced, which implied that the buying potential of customers reduced. This affected the demand of copper and it declined resulting to the lowering of price to 3,717 USD. This fluctuation revealed that the price elasticity concept is linked with the demand of a product. In other words, the macroeconomic condition affected copper price by lowering its demand with high supply (Mankiw, 2014, pp. 90-91). In this context, it can be stated that the supply of the product was high, but the demand was low, which affected the price and reduced it considerably. This was the scenario in the year 2008, when the global turmoil took place. On the contrary, when concerning from the supply side, it was observed that in 2008, the supply for demand was high, this implied low demand. In this regard, the suppliers to gain profitability reduced the price. This again implied that price is related to the supply of copper as well for which there has been a movement in supply curve (Gillespie, 2014, pp. 84-87; Wessels, 2008, pp. 35-55). However, in the year 2009, the price of copper has been observed to have an increase by 18%, as consumers were regaining their purchasing power. The reason was the shift in the demand and lower supply rate. The supply of copper lowered due to the after effect of global downturn, but the demand was showing a growing trend. This aspect leads to the fluctuation in copper price. From the graph provided, price fluctuation can be determined by analysing the demand and supply activities. In the year 2011, price was showing a growing trend, which implies that the purchasing power and the demand for copper is high (Gillespie, 2014, pp. 84-87; Adil, 2006, p. 9). Copper is therefore volatile as its price is directly related to the demand and inversely with supply. It is a given assumption that market drivers are always driven towards equilibrium. Therefore, based on this assumption, the price of copper in the given years from 2008 to 2014, tries to meet the equilibrium position based on the demand and supply curve. Conclusion From the above analysis, it can be comprehended that price variation depends on the quantity demanded and supply. Copper is not a necessary good, therefore proved to have high price elasticity. It can be concluded that when there is a decline in the economic activity, the price of copper tends to fall due to the decrease in the demand. Thus, price fluctuation of copper is high, as it is dependent on the purchasing power that affects the demand and supply. References ABN AMRO, 2014. Copper Price & Economy. Copper Price as an Economic Indicator, pp. 1-11. Adil, J.R., 2006. Supply and Demand. Capstone. Ball, M.K. & Seidman, D., 2011. Supply and Demand. The Rosen Publishing Group. ECORYS, 2012. Mapping Resource Prices: The Past and the Future. Summary Report – Final Report, pp. 1-22. Gillespie, A., 2014. Foundations of Economics. Oxford University Press. Knittel, C.R. & Pindyck, R.S., 2013. The Simple Economics of Commodity Price Speculation. A Joint Center of the Department of Economics, pp. 1-49. Mankiw, N., 2014. Principles of Economics. Cengage Learning. Moon, M.A., 2013. Demand and Supply Integration: The Key to World-Class Demand Forecasting. FT Press. Owen, M., 2014. Price elasticity of demand 67 Success Secrets - 67 Most Asked Questions on Price elasticity of demand - What You Need to Know. Emereo Publishing. SSCC, 2014. Supply and Demand. Lecture. [Online] Available at: http://www.ssc.wisc.edu/~scholz/Teaching_101/Lecture3.pdf [Accessed April 17, 2015]. Samuelson, N., 2005. Economics. Tata McGraw-Hill Education. Tulpule, V., 2008. Outlook for Metals and Minerals. Outlook, pp. 1-18. Wessels, W.J., 2000. Economics. Barrons Educational Series. Bibliography Arnold, R.A., 2010. Economics. Cengage Learning. Mankiw, N., 2011. Principles of Macroeconomics. Cengage Learning. Stretton, H., 1999. Economics: A New Introduction. Pluto Press. Read More