Transcript Commodities

ZAMBIA AND COPPER
Eco 680
Dr. Gomis-Porqueras
Price Movements of Primary Commodities:
The Case of Copper in Zambia
Copper is an example of a primary commodity. It is a
naturally occurring raw material that is traded in world
markets.
Although the total exports of copper from Zambia have
decreased significantly over the last 20 years it still
accounts for 75% of Zambia's export earnings.
The export revenue from copper depends upon firstly the
price and secondly the quantity sold.
Hence the price that copper earns on the commodity
market is very important.
Price Movements of Primary Commodities:
The Case of Copper in Zambia
The demand for the metal still remains high however new
technologies such as fiber optics are being discovered
that can substitute for copper.
The prices of many primary commodities have shown two
noticeable characteristics:
They often exhibit a downward trend over time
They are prone to fluctuations
How does economic theory explain this?
Price Movements of Primary Commodities:
The Case of Copper in Zambia
The downward trend in commodity prices is due to changes in the
long-term conditions of supply and demand.
Supply factors
An increase in the supply of the commodities due to improvements
in the technology e.g. development and use of fertilizers and
pesticides.
An increase in government subsidy or increases in production
quotas
Demand factors
If alternatives to the commodities are found then the demand
curve may even decrease and shift to the left.
Price Movements of Primary Commodities:
The Case of Copper in Zambia
As the diagram shows the overall effect of these has been for the equilibrium market
price to fall.
The small increase in demand causes the equilibrium market price to increase from
P0 to P1 however the greater increase in supply causes the price to fall from P1 to P 2.
Price Movements of Primary Commodities:
The Case of Copper in Zambia
Why are commodity prices inclined to fluctuate?
Supply Shocks
Agricultural prices are prone to unplanned changes in
supply because of weather conditions. Shocks such as
these will cause the market supply curve to make shifts
to the left and right depending upon the weather
conditions.