Effects of Drop in Gold Consumption Demand in India: Illustration with Demand and Supply Curves

Factors that led to decline in demand for gold jewelry in India

“India is one of the largest markets for gold. Jewelry demand in India between July to September fell 48% year-on-year to 52.8 tonnes from around 101.6 tonnes a year earlier, the [World Gold Council] said in a report. But demand for gold as an investment rose 52% to 33.8 tonnes on-year. […] The precious metal plays an important role in India’s culture — it’s considered auspicious to buy gold during festive occasions or to give gold jewelry as a gift at weddings. It is also seen as a symbol of affluence and a safe investment. [Somasundaram PR, managing director for India at the World Gold Council] explained that demand for gold between July to September tends to be relatively low, driven by seasonal factors such as monsoons and inauspicious periods. The drop in demand for gold jewelry was also due to many festivals and weddings being canceled or postponed due to the coronavirus pandemic that has infected more than 8 million people in India. “On the other hand, gold’s safe haven attributes and an anticipation of price rise paved the way for an increase in investment demand for gold bars and coins,” he added.” (www.cnbc.com, accessed on 30 th October 2020) 

Required

Demand for gold arises from both consumption and investment reasons. How does a drop of demand for consumption of gold (as the one experienced in India between July to September 2020) affect the price of gold? You are required to illustrate your answer also through diagrams (i.e., demand and supply curves).

“Aging of the population is a cause of the rising costs of healthcare but a minor one compared with the main driver that much more can be done and that most of what can be done costs more than what used to be possible. This is what economists call “supply-drive demand.” You build hospitals, intensive care units, roads, prisons, and medical schools and they promptly fill up. You develop new, highly-expensive treatments, and people want to use them. As a healthcare leader once said to me, “The main cause of the increase in healthcare costs is the National Institutes of Health.” (Richard Smith, former editor of the British Medical Journal; https://blogs.bmj.com, accessed on 30th October 2020) 

Required

Explain why, according to the ‘supply-drive demand’ argument, an increase of supply triggers an increase of demand for a good or service. Does this argument always hold across industries and services – such as, for example, hospitals, intensive care units, roads, prisons, and medical schools? You are required to illustrate your answer also through diagrams (i.e., demand and supply curves, cost curves).

“The EU antitrust regulators launched on Monday (5 October) another investigation to clamp down on anti-competitive business practices that led to a ‘canned vegetable cartel’ in the European food market. According to the European Commission, Italian agricultural cooperative Conserve Italia agreed for several consecutive years with other market participants to fix selling prices, share markets and allocate customers “for the supply of certain types of canned vegetables to retailers and/or food service companies.” […] This specific case is linked to a bigger one which brought to light the existence of cartels and restrictive business practices in the canned foodstuff sector all across Europe, dating back to the early years of the 2000s. Last year, the Commission found that French agriculture cooperatives Bonduelle and Groupe CECAB, as well as the Dutch company Coroos, participated for more than 13 years in a canned food cartel in the European Economic Area (EEA). […] After having admitted their involvement in the cartel, Coroos and CECAB agreed to settle the dispute by paying a fine of more than €31.6 billion, while Bonduelle was pardoned for having revealed the existence of the cartel to the Commission.” (www.euractiv.com, accessed on 30th October 2020)

Required

What are the conditions that give rise to business cartels like the one of canned vegetables in the EU, and those conditions that can make a cartel break up?