Prices of Palladium Metal Assignment Example | Topics and Well Written Essays - 1000 words

Prices of Palladium Metal - Assignment Example The diagram given below explains the phenomena: D` D S P1 P2 D D` The diagram exhibits that when alternative metals are found to be usable in manufacture of automobile converters, then Platinum and Titanium are no longer needed for use in automobile converters (Sharma, 2009). Hence, there is a consequent movement in the aggregate demand curve for automobile converters, shown with the movement of curve DD to D`D`. The shift in aggregate demand curve shows there is lesser inclination of buyers of Platinum and Titanium buyers to purchase these metals at a given price level (Agarwal, 2007). The shift in aggregate demand curve alters the equilibrium point at which aggregate demand curve DD intersects with aggregate supply curve SS (Mendes, 2011). It is important to note that the supply curve remain unchanged because suppliers are willing to supply Platinum and Titanium metals at the same price and quantity as before. The new equilibrium point corresponds to a lower price of the metals and reduced quantity of metal being traded in the market (Baurnol, 2011). The elasticity of both demand and supply curve is taken as being ‘unit elastic’ because both suppliers and buyers have alternative materials available. Hence, at the new equilibrium point both price and quantity consumed of the two metals is lower than it was before. The net outcome is a fall in both prices and quantity consumed of the two materials. ii) The above mentioned change took place merely due to the reduced demand for the physical metal in the market. However, another effect takes place in the market after the news of alternative metals become public (Henderson, 2003). The second effect is termed as speculation effect. The speculators in the metal market either maintain a physical stock in their possession or futures contracts of these metals with the hope of selling these metals at a profit. When the news of alternative metals becomes public, these speculators will try to rid themselves of their possession of metal immediately. Their attempt would be motivated by the urge to go out of market before market goes down to a very low level. D S S` P1 P2 This second effect of the decisions of these speculators will change the supply in the market of the alternative metals. There is going to be a short-term increase in the supply of Platinum and Titanium due to unloading effect of speculators. This movement is depicted the diagram above with the rightwards movement of the supply curve. The net effect of this movement is a further decrease in the price of the commodity in the market (Fisher, 2007). However, the effect of reduced quantity consumed will be partly compensated by a partly increase in consumption. Those manufacturers which used to find Titanium and Platinum as too costly would now be able to afford these metals in manufacture of automobile converters. Therefore, the net effect of the above two phenomena in the market for precious metals would be a significant dec rease in the prices of the metals (which could certainly be referred to as a ‘market crash’) and a partly decrease in consumption of Titanium and Platinum. Impact on the Market for Nissan and Mazda The impact of technological breakthrough will also be felt on the market for automobiles as well. In this section, the impact on the market demand and prices of both Mazda and Nissan is discussed. The graphical