Palladium+Supply+and+Demand+by+Jerry

=TITLE OF EXTRACT:=

Palladium: Supply and Demand
=SOURCE:= http://palladiuminvestingnews.com/1264-palladium-supply-and-demand.html

=DATE EXTRACT WAS WRITTEN:= Feb 22, 2011

=DATE CURRENT EVENT WAS WRITTEN:= March 27, 2012

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= This article starts off by stating that the price of palladium has reached the highest in ten years. It explains that this is caused by the rising demand of palladium that is overshadowing the limited supply of palladium. The article explains that the limited supply is because Russia, one of the main producer of palladium, has depleted most of its natural resources. As the production of palladium relies on one of the four factors of production, land, the decrease in land as a factor of production leads to lower amounts of palladium being produced. Additionally, since Palladium mines are deep and costly to run, the cost of producing palladium will also lead to low supplies as this will make it even harder to extract palladium. This suggests that there has been a decline in supply. Moreover, the article reported that there has been an increase in demand for automobiles all over the world. As palladium is used to manufacture catalytic converters that are important in the production of automobiles, the demand for palladium is thus increased as well. At the same time, palladium is also demanded in the healthcare industry as it can be used to help reduce side effects of treatments such as chemotherapy. Since the supply is so low as compared to the increasingly rising demand, the suppliers will then have to raise prices to lower the demands for palladium since the Law of Demand states that quantity demanded of a good or service will decrease when the price of it increases, ceteris paribus. price elasticity will be talked about in graphs and evaluation.

=VOCABULARY TERMS AND DEFINITIONS:=
 * Supply - The quantity of a good or service that producers can and are willing to produce at a given price.
 * Demand - The quantity of a good or service that consumers can and are willing to use/consume/buy at a given price.
 * Law of Demand - quantity demanded of a good or service will increase when the price of it decreases and decrease if the price increases, ceteris paribus.
 * Law of Supply - quantity supplied of a good or service will decrease when the price of it decreases and increase if the price increases, ceteris paribus.
 * Factors of production: four resources that allow an economy to produce its output: land, labor, capital, entrepreneurship.
 * Opportunity cost: the second best choice foregone in order to execute another economic decision.
 * Subsidy: amount of money paid by the government to a firm, per unit of output
 * Price Elasticity of Demand: Measure of how much the demand for a product changes when there is a change in the price

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=EVALUATION:= This situation benefits the producers and investors of the palladium industry most. Even though producers and investors will straggly to maintain a steady production of palladium and even a positive income, the demand for palladium will still stay very high as the need continues to grow, and thus the prices will only further increase as the suppliers will continuously increase price to control the demand. In the future, as mining technology improves, the producers will then be able to produce more palladium and sell it at a high price due to the demand. Thus, in the long run, the production of palladium will become very profitable. The consumers on the other hand, will not be as happy. As shown by the article, the need for palladium is quite urgent in many areas, and thus the demand for palladium should be quite inelastic. This means that the quantity demanded will not change much as the price increases. Smaller firms that need palladium might then be unable to compete with bigger firms that have a bigger buying power as supply is scarce relative to demand. In this case, it is best if the government subsidizes the production of palladium, both to aid suppliers so that they can extract more palladium from the earth and so that the prices of palladium could decrease. With a subsidy, the producers might be able to produce more palladium since more financial aid will lower the difficulty of extracting palladium. They will also be able to set lower prices for palladium and still earn a large profit from the government for each unit of palladium they sell. Consumers will also benefit from the lower prices and bigger quantities. However, with subsidies, there are always opportunity costs, or the second best choice forfeited. Instead of a subsidy, the government could in turn use that money to fund education or the poor.