Question

2. Early in 2011, the world price of copper reached a record high of over S10,000 per ton. Tow events appeared to lie behind this high price. First, China's rapid economic growth and the massive building of infrastructure. Second, an explosion closed a major Chilean port used for shipping a substantial fraction of the world's copper output. Use a demand-and- supply diagram to illustrate these events in the copper market, and explain how each event shifts either the demand curve or the supply curve. (10 points)

Answer 1

Reason behind the record high price of copper was due to the following reasons:

1 ) China's rapid economic growth and the massive building of infrastructure which led to an increase in demand causing the demand curve to shift right .

2) Explosion at a major port  has resulted in reduction in supply which would cause the supply curve to shift left .

As a result of changes in both demand and supply , the prices of copper have increased .

Phree 个

In the diagram OP1 is initial price before the occurrence of these two events such that equilibrium occurs at point E where the demand curve DD and the supply curve SS intersects . As a result of increase in demand from china , demand curve shift from DD to D’D’ and the supply curve shifts from SS to S’S’ causing the price to rise to OP2, $10,000.