China+United+Steel

Source: http://www.chinadaily.com.cn/bizchina/2011-03/25/content_12229229.htm

Summary: The recently passed three major incentive policies which include vehicle purchase tax concessions, automotive popularization in the countryside and auto replacement which began to withdraw, as well as Beijing’s car purchasing limit and increasing car costs. These policies cause a major slowing of the car industry in china. Since iron and steel are major materials used to create cars, the now decreased quantity demanded of cars causes there to be a decrease in demand for these raw materials. This lack of car production could cause a negative externality of production. Since there is less invested in the car and road industry, this in turn effects the iron and steel industry. There is also a lack of investment in road production which uses a lot of steel and iron. China is still importing the same amount of steel as past years but is exporting less of it to conserve. This may cause an overall shortage of steel to other countries in need of it. Terms: Demand: How much a consumer is willing and able to buy a product. Quantity demanded: how much of a product a consumer is going to buy a product. Shifts on Curve for Demand Curve: a shift to left or right is made to match the quantity supplied. Supply -The quantity of a good or service which is needed and is available in a market. Shortage -When quantity demanded is greater than quantity supplied in a market. Negative externality of production: the production of a product adversely effects a third party. Immobility of factors of production: A cause of a market failure when resources do no always find it easy to move between industries quickly.

Evaluation: In order to increase the demand for steel and iron, there has to be an increase in quantity demanded for cars. One of the main causes of this problem is the three major incentive policies which limit car production. The government could try to limit the severity of these policies which would decrease the cost to produce or buy cars. If there is an increase in quantity demanded for cars, there will automatically be an increase in demand for steel and iron since it is a highly demanded material for this industry. This will increase the demand of steel in China which would increase the importing and exporting of these materials. As mentioned above, there is also a lack of investment in road production. To increase investments the Chinese government could try to improve their traffic system and build more highways which would bring in investments and therefore increase the demand for steel and iron.