Copper Data Response

1)     a) Demand: The quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period.

      b) Economic growth: The rise of real national income per capita   and measure of Gross Domestic Product (GDP).

2)     One possible reason for the increase in copper prices is the higher demand in copper.  In the article, it states, “demand from China has been the main driving force behind the recovery of copper prices…” It makes sense that there would be more demand since there are construction projects and the Shanghai expo project. Not to mention the huge rates of economic growth allow Chinese consumers to buy more electronic appliances that are built with copper to function.

Since there is a higher demand for copper, this means the demand curve would shift to the right. How would this make the price rise? If you look at the diagram below you see a demand curve and a supply curve. Following the rule of ceteris parabus, when demand shifts to the right the supply curve does not move. As you can see in the diagram:

-          ‘D’ shifts to the right and ‘D1’ is created which is the new demand curve

-          ‘S’ is the supply curve, which does not move.

-          Where ‘D’ and ‘S’ intersect is the equilibrium which determines ‘P1’ (Price) and ‘Q1’ (Quantity)

-          However when the demand curve shifts, equilibrium is lost and the market has to reach equilibrium again

-          Where ‘D1’ and ‘S’ intersect is the new equilibrium which creates ‘P2’ (Price) and ‘Q2’ (Quantity)

-          As you can see, both the price and quantity have incremented due to a higher demand in copper.

This shows one possible reason for the increase in copper prices.

3)     The price of consumer goods such as a new washing machine might be expected to rise due to the ascent in price of copper. This is an example of the non-price determinant, cost of factors of production. The article states, “Copper prices on the London Metal Exchange hit $8,009.75 a tonne in early trading…” This shows that copper is more expensive. Thus companies have to buy more copper at a higher price.  What does this mean?

Since copper is at a higher price, this means the supply curve would shift to the left. How would this make consumer goods prices raise? If you look at the diagram below you see a demand curve and a supply curve. Following the rule of ceteris parabus, when supply shifts to the left the demand curve does not move. As you can see in the diagram:

-          ‘S’ shifts to the left and ‘S1’ is created which is the new supply curve

-          ‘D’ is the demand curve, which does not move.

-          Where ‘S’ and ‘D’ intersect is the equilibrium which determines ‘P1’ (Price) and ‘Q1’ (Quantity)

-          However when the supply curve shifts, equilibrium is lost and the market has to reach equilibrium again

-          Where ‘S1’ and ‘D’ intersect is the new equilibrium which creates ‘P2’ (Price) and ‘Q2’ (Quantity)

As you can see, the price has incremented but the quantity demanded has decreased. Hence the price of consumer goods such as a new washing machine might be expected to rise. This is due to the fact that the price of copper has risen.

In the text, there is evidence to why copper prices may increase or decrease. The extract also shows us why demand could increment or decline. What is likely to happen in the copper market in the coming months?

4)     Many argue that the copper market is going to go down hill due to the fact that China is the country supporting the copper market and China is not going to need copper soon. This means copper demand is going to fall and prices would fall. Projects such as the “Shanghai Expo” is due to finish soon and therefore copper demand would most definitely drop.

Nevertheless, the text does say that "demand for new washing machines, fridges and other products that need copper" implying that copper is going to be needed for the new appliances that are going to be used in the new buildings.

Personally, I believe that the price of copper is going to drop but not plummet. Since the projects are finishing, this means the demand for copper is going to fall. But with new electrical appliances needed, that is going to give a little boost to help the copper market. Therefore, there is going to be some type of balance that allows the copper market to continue to flow but not at the pace that it is at the moment of the article.

Demand Curve Essay Questions

• Distinguish between a shift of the demand curve for a product and a movement along the product's demand curve

In economics, demand is the quantity of a service or good that consumers are keen and able to purchase at a given price. That means that as the price of the product lessens, the quantity demanded of the product will usually increment. This is only assuming that ceteris parabus is in place, which means as one factor changes the other ones stay equal.   We can show this by drawing a demand curve for the product with price being on the y-axis and quantity demanded on the x-axis. However, what determines a shift or a movement along the product’s demand curve?

There are many factors that cause the demand curve to shift nevertheless the only factor that does not do this is price. The change in price of a product causes a movement along the existing demand curve. As the price of the product changes, the quantity demanded of the product will begin to change with it also. There are two effects that cause this movement along the curve, the income effect and the substitution effect. The income effect or ‘real income’ reveals how much a person can buy with their income. Therefore when the price of the product decreases, a person’s real income will increase which then leads to people buying more of this product. The substitution effect is different in the way that if the product’s price decreases it will become more desirable and thus become the substitute product for similar products bought formerly. Another cause in the movement along the demand curve of a product is complements; products that are used together. When a couple or several products complement each other, a decrease in one of the product’s price will cause a movement along that product’s demand curve. This then allows the other product’s demand curve to shift which is NOT a movement along the demand curve. All in all, the ONLY factor that causes movement along the existing demand curve for a product is price.

Meanwhile, there are many factors that cause the demand curve for a product to shift. Aspects such as income, the price of similar products, tastes, expectations, and other factors affect the shift in the demand curve of a product.  A shift to the right signifies that more of the product is demanded at every price; meaning that the demand has augmented. A shift to the left signifies that less of the product is demanded; meaning that the demand has declined.

Income affects the shift in the demand curve for a product in two ways. With normal goods as income rises, demand also rises which causes a shift to the right. As for inferior goods when income increases, demand decreases because consumers would switch to the better products.

As for the price of other products, we already saw how substitutes and complements affect the movement along the demand curve of the product but it also affects the shift! In substitutes as the price of one product decreases the other product’s demand falls and shifts to the left. With complements, a decrease in one of the product’s price will cause a movement along that product’s demand curve. This then allows the other product’s demand curve to shift to the right.

Taste can cause a shift to the right as well for the reason that if there is an increase in liking to a product, then more people will demand it. Expectation can make a shift to the right in the demand curve since expectations regarding the future may influence demand for a good or service in the present.

Other factors that can also cause a shift in the demand curve of a product are the size of a population, changes in age structure, income distribution, government policy changes, and seasonal changes.

In conclusion, we were able to see what determines a shift or movement along the demand curve of a product. It all depends on the factor being affected and knowing the difference will definitely help you create and understand demand curves.

• With reference to two different determinants of demand, explain why the demand curve for bicycles might increase. Use a diagram to support your answer.

The demand curve for bicycles might increase/ shift to the right due to two non-price determinants, complements and substitutes.

 The demand curve of a bicycle is as follows:

However, it is against the law to ride a bicycle without a helmet. Therefore, bicycles and helmets are complement products.

The demand curve of the name brand helmet is as follows:

A problem arises though because the name brand helmet is pretty expensive and that can be a deal breaker for many people. That is not helpful because then the demand curve for bicycles would shift to the left. That is where a substitute comes into place. There happens to be a generic brand helmet that is much cheaper than the name brand helmet.

The demand curve for the generic brand helmet is as follows:

This means that the name brand helmet would shift to the left because the generic brand is significantly cheaper meaning it would become the substitute.

The demand curve for the name brand helmet now:

Now the bicycle and generic helmet can be bought together which causes both of them to shift to the right.

The demand curve for the generic brand helmet now:

The demand curve for the bicycle now:

All in all, this is a possible way of using two determinants (complements and substitutes  for a bicycle’s demand increasing.





Sources:

- Mr. Caple's Wisdom
- IB Economics Course Companion

- http://www.bized.co.uk/notes/2012/02/shifts-versus-movements-along-demand-curve

- http://www.youtube.com/watch?v=vrTPMBHpCVE

- http://www.youtube.com/watch?v=gsTlp_JCgZ8

Planned vs. Free Market Economies

Economics is a system of rationing goods and services; however this is a very vague statement. Economics itself is an exceptionally complex subject which is why people dedicate to study it for a living. The basic economic problem is what determines what type of allocation system a state has. The two main theoretical allocation systems are planned economies and free market economies. How do governments decide which allocation system is best for their people? To what degree should the government arbitrate in the economy? Which system is better? This is an extensive debate for the reason that both economies have their upsides and disadvantages.

The basic economic problem consists of three prominent questions. A government settles on what is produced and in what quantities, how things should be produced, and who things are produced for? Each allocation system handles each of these questions differently. Seems fairly simple up to now and that is because theoretically these systems seem almost perfect. As soon as free market or planned economies come to life is when tribulations arise. Most economies are not solely free market or planned but a mix between the two, better known as a mixed economy.

The IB Economics Course Companion textbook states that in a planned economy, decisions in the basic economic problem “are made by a central body, the government”.  In other words, the government controls the economy through central planning and does not take decisions from their people. They decide what is best for their people and command production, prices and wages. All resources are collectively owned by the state which means distribution is handled by them. At present, there are only 3 countries that strictly have planned economies (North Korea, Cuba and Laos). A Centrally Planned economy provides advantages such as a definite lifestyle as long as you work and do what you are asked to do. In a planned economy, you receive benefits such as free education, health care and much more. It seems like a perfect system since everyone receives resources equally; there should be no unemployment or poverty. While some disadvantages include dominance from the government due to their full control; which leads to individual liberties being taken away. Also, an individual could be a hard worker and not benefit at all because everyone collects equal resources. This could lead to many people slacking off and their quality of work would definitely degrade.

Free Market economies are the other system of allocation. It is also known as Private Enterprise or Capitalism. In this type of economy, the state does not interfere in the economy which means the economy is in private hands. The economic problem is decided through private industries allowing for variation. In this type of economy, the idea of ‘demand and supply’ is used to settle on production, prices and wages. Individuals are able to choose an adequate way to allocate resources according to demand and subsequently, profit rises to their benefit. If it was not obvious already, resources are privately owned. The upsides of a Free Market economy is that with economic freedom comes personal freedom. The two conjoin to create individual liberties. Another advantage, dissimilar to planned economies, is that individuals are compensated for their hard work which means someone who is lazy earns what they deserve.  You are rewarded economically for your triumphs and this reflects on the way someone works. Disadvantages of this type of economy include social inequality. You are not guaranteed anything by the government therefore an indolent person would not benefit because the government would not provide health care, education and other necessities. A further nuisance is that demerit goods (terrible goods and services) could be over provided and merit goods (excellent goods and services) will be under provided.

Both economies have many advantages and disadvantages though listing them all would just be endless. Personally, I believe that both economies would not be great for any society. People deserve to have liberty nevertheless they also need guidance from the government. Too much of anything is a bad thing which is why there should be a mix between both allocation systems. I am only now learning economics and could not give an opinion on how they should be mixed. Hopefully, soon enough I could state how an economy should be formed. Capitalist economies give me the freedom I deserve and reward me with how hard I work. Whereas centrally planned economies allow me to live a standard life providing me with my necessities. Therefore, I lean more on the capitalist side (I have to say that because I am American) but I see aspects from planned economies that are essential to strive for the finest economy for the people.

By: Matthew Bocanumenth

Information collected from:

- IB Economics Course Companion (Jocelyn Blink & Ian Dorton)

- Notes from Mr. Caple's class