ZAMBIA AND COPPER Eco 680 Dr. Gomis-Porqueras

Price Movements of Primary Commodities: The Case of Copper in Zambia Copper is an example of a primary commodity. It is a naturally occurring raw material that is traded in world markets. Although the total exports of copper from Zambia have decreased significantly over the last 20 years it still accounts for 75% of Zambia's export earnings. The export revenue from copper depends upon firstly the price and secondly the quantity sold. Hence the price that copper earns on the commodity market is very important.

Price Movements of Primary Commodities: The Case of Copper in Zambia The demand for the metal still remains high however new technologies such as fiber optics are being discovered that can substitute for copper. The prices of many primary commodities have shown two noticeable characteristics: They often exhibit a downward trend over time They are prone to fluctuations How does economic theory explain this?

Price Movements of Primary Commodities: The Case of Copper in Zambia The downward trend in commodity prices is due to changes in the long-term conditions of supply and demand. Supply factors An increase in the supply of the commodities due to improvements in the technology e.g. development and use of fertilizers and pesticides. An increase in government subsidy or increases in production quotas Demand factors If alternatives to the commodities are found then the demand curve may even decrease and shift to the left.

Price Movements of Primary Commodities: The Case of Copper in Zambia As the diagram shows the overall effect of these has been for the equilibrium market price to fall. The small increase in demand causes the equilibrium market price to increase from P0 to P1 however the greater increase in supply causes the price to fall from P1 to P 2.

Price Movements of Primary Commodities: The Case of Copper in Zambia Why are commodity prices inclined to fluctuate? Supply Shocks Agricultural prices are prone to unplanned changes in supply because of weather conditions. Shocks such as these will cause the market supply curve to make shifts to the left and right depending upon the weather conditions.