Answer an original question of your choice which requires you to use a microeconomic principle. You must create an original question. This question should involve a pattern of events or behaviour that you personally have observed. The issue you address need not be one traditionally analysed using economics, but your work should be an original application of economic logic and reasoning to something which interests you.
Figure below shows the world price of zinc over the past eight years. It can be seen from Figure that the price of zinc has fluctuated a great deal during this period. For example: between January 2009 and October 2009 the price of zinc increased by 57%. In an essay use economic analysis to explain changes in the price of zinc over the period shown in Figure and why the price fluctuations have been so great.
Pricing Strategy of Smartphones with Different Colors and Models
Why price of smart phones of similar models black in color are offered at higher prices than the smart phones of white color or yellow in color?
In order to answer this question it can be stated that technical gadgets like smart phones are sold at different prices throughout the year depending on many factors. The price of branded and popular smart phones usually remains high when they are newly launched in the market. The price of same phones tends to decrease at the end of the year. There are number of factors which affect the pricing of the smart phones ( Mankiw 2014). As soon as a new model of smart phones enters into the market, the price of the former falls down. Now, the above statement states that it has been noted that smart phones which are black, blue or have any unique in color are offered at a higher price than the models which are yellow or white in color. By the law of demand, it is known that the price of commodities tends to rise when there is an increase in demand (Mankiw 2014). This is the reason why the cell phones of same model with different colors are sold at different prices. It has been observed that cell phones of yellow or white color are less widely used among the people because it can get soiled easily. Therefore, the demand of smart phones which are black, blue, golden or rose gold in color remains high. As the demand of cell phones of similar models with black color remains high, the cell phone companies also do not provide huge discounts. Price is determined by the demand of commodities. As the craze for new cell phone models with unique colors remains high, it has been found out that apart from remaining highly priced the models also remains out of stock initially due to high demand. According to a research black colored cell phones remains the most popular choices among all age groups. Thus, the law of demand states that price tends to rise when the demand for goods increases and the price of goods tends to decrease when the quantity demanded falls (Heakal 2015). However, when an advanced new model of the smart phone enters into the market, the price of the former model decreases and all are charged the same price irrespective of the colors. Some of the principles of economics include the cost benefit principle, scarcity principle, the principle of comparative advantage, the efficiency principle and the economic principle. Demand for black models has always been higher and this the reason why the price of those colored models are not given huge discounts.
Factors Influencing the Pricing of Zinc
Zinc is one of the most used metal in the daily life. It is mostly used for galvanising other metals. It is also an essential mineral for the human health. According to the sources, the largest producer of Zinc is China after Australia and Peru (Bedi and Kaur 2015). The reason behind the increase in the reserve of zinc is due to expansion of mines. Zinc is also not considered to be a safe asset. There are many outside factors which affects the price of metals and we cannot control them (Wang et al. 2013). Currently the total zinc reserves amount to 1.9 billion tonnes. There are number of factors which influences the price of zinc. The graph also shows that the price of zinc has been the highest in the year 2017 which has been the highest in the ten years. Increase in the price of zinc also result in the rising price of car because it is a rustproof metal used in car. Continuous demand of zinc from China and regular supply cuts in mining industries are one of key reasons of the rising price of zinc. Zinc is not considered to be a safe asset because it heavily depends upon the economy(Ahmed, Nayl and Daoud 2016) . This means when the economy will be bad, zinc will find it difficult to perform. In most of the cases, it can be observed. The following paragraph aims to describe the factors that affects the price of zinc.
The graph in the question shows that the price of zinc had fluctuated very much from the year 2009to 2017. The price of zinc has been the highest in the year 2017 in the last ten years. Price of zinc had increased to 57% from January 2009 to October 2009. The price of zinc in 2009 had been the lowest in the month of February which was 1112 USD per metric ton and it decreased to 6% from the month of January 2009 (Lme.com 2018). Till February 2010 the percentage change in price of zinc had been positive. In the year 2010, the month of June had the lowest price and the month of January had the highest price of around 2434.45 USD per metric ton. Though January 2011 had seen increase in price of Zinc, it soon came down at the month of October and November. The price of zinc did not fluctuate much in the year 2012 where the price was quite similar all throughout the year. The price of zinc had been the highest in the month of January in 2013. In the year 2014 zinc was around 2.11k to 2.38k USD all through out the year and continued till July 2015. Price again started to decline in 2016. In the year 2017 the price of zinc had been the highest (Daigo et al. 2014). The month of November 2017 had experienced the highest price of zinc in the decade amounting to 3229.31USD per metric ton. Therefore, some of the factors which affects the price of zinc are
DEMAND-One of the most important factor which affects the price of zinc is its demand. The demand of zinc usually come from two main places. One is from the healthcare market and the second is from those industries which uses zinc as the raw materials. The price tends to go higher when it is predicted that the demand will rise up. The top consumer of zinc which is used for galvanising steel is China. Along with the top producer, the Chinese are also the largest consumer of zinc (Wang et al. 2013). Therefore, in this way China plays a major role in determining the price of zinc. Different types of policies (for example – the monetary policy) from the People’s Bank of China can sometimes affect the demand of zinc. Tighter policies will depress demand of zinc.
The above graph shows that as when the amount of zinc demanded tends to rise the price also rises. When the quantity demanded rises from Q1 to Q2, the price of zinc also rises from P1 to P2.The X axis measures the amount of zinc demanded. D1D1 represents the demand curve for the initial stage and when demand rises it goes up to D2D2. In this way, when the demand of zinc from China rises, price of zinc also increases.
US DEMAND- Zinc is highly used in construction purpose. Large amount of galvanized steel is demanded for making huge constructions and infrastructures. High demand for automobiles in the United States of America also increases the demand of zinc and therefore the price also increase (Ahmed, Nayl and Daoud 2016)s. The transportation sector of US also have high demand for zinc which will affect the price of zinc. Zinc is priced generally in US dollars per kilogram, therefore the performance of the American economy will also effect the price of zinc.
(Source: Global Base Metal Industry-Zinc price 2017)
SUPPLY-The worldwide supply of zinc is one of the main factors which can affect the cost of zinc. However, when there will be overproduction of zinc, the price of zinc will fall down. In the second scenario if there is a situation where the mining activities decreases which will result to deficit in supply of zinc which will further increase the price of zinc. China has been both the largest producer as well as the largest consumer of zinc (Cao et al. 2014). Therefore, the fluctuations in the supply of zinc in China will also affect the price. After copper, iron and aluminium zinc has been the highest used metal. Smelting of zinc and mining are the important economic activities which also contribute to the air pollution (Lu et al 2015) . Excessive mining can lead to deterioration of the air quality for which the Government of China has curbed the production of zinc. When the government curbs the production of zinc, China will have to depend on imports which will again increase the price of zinc.
SUBSTITUTES-The demand of zinc is also affected by the availability of the substitutes. Zinc is an essential metal used for die casting alloys. However, when the price of zinc increases, substitutes like magnesium and aluminium will be used in its place.
LONDON METAL EXCHANGE STOCK LEVEL-The London Metal Exchange also affects the prices of zinc to some extent. It can be also seen that the price of zinc has increased again in 2014, the reason behind this was dropping of the stock levels during 2014( Lme.com 2018). According to the report of The Financial Times price of zinc is inversely related to the stock levels. Therefore, the LME stock levels are very important in determining the price of zinc.
INPUT PRICES-Sphalerite had been the most common ore of zinc. It usually requires a lot of energy to break down the ore and extract the minerals (Daigo et al. 2014). A lot of electricity and coal is used for refining and mining zinc. Therefore, the cost of coal, electricity and also crude oil will affect the price of zinc.
Zinc is an essential mineral which is needed by the human body. It also has a huge importance in the infrastructure sector where galvanised steel is required. Rices of zinc fluctuate through the year due to various reasons. One of the major reason of the price volatility of zinc is the demand and supply of zinc from China because China is both the largest producer as well consumer of zinc. Other reasons are input prices, demand from The United States of America and demand from developing countries. Zinc also has the direct relationship with the economy. Lastly, it can be concluded by saying that China has a huge power in determining the price of zinc.
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