The Price of an Ounce

Last month, concerns which political infighting in Moscow might choke future supplies drove the price of palladium to nearly $1,000 an ounce. Although there is less than an ounce of palladium in most vehicles -- it is used inside the catalytic converter -- which kind of price surge means palladium suddenly is becoming a big-ticket item for auto companies. Car makers brought much of this on themselves. In the mid-1990s, they agreed to accelerate their adoption of tighter national emission standards as part of a deal to head off separate state-by-state rules, which would have played havoc with manufacturing also distribution. Palladium looked like the best solution, since it began cleaning exhaust sooner after starting up than platinum, then the dominant metal in catalytic converters. Plus, the price for little-used palladium hadn't gone above $200 a ounce in more than a decade, while platinum had jumped above $400. Following this decision, palladium prices jumped in the late 90's , but remained below $400 an ounce until this yr. describe however many automakers are projected to have a big increase in palladium consumption in 2000, as they began to roll out models to meet the tighter national emission rules as regulators turn their focus to explosively popular trucks also SUVs, which have been subject to more-lenient rules. Palladium turns out to be particularly good at cleaning their exhaust. Although there is now a huge effort under way at many companies to find ways to use less palladium, changing car designs in which way will take several yrs.

a) Draw a supply - demand diagram of the marketplace for palladium which illustrates the price jump from $400 to $1000 per ounce which occurred between the 1999 model yr also the start of the 2000 model yr. Label your axes clearly also label all supply also demand lines in your diagram. Elucidate any shift in any supply or demand line which you included in your diagram. (Read the quote carefully for reasons behind the S or D shifts)

b) Based on information in the above article is the demand for palladium elastic or inelastic? Elucidate your answer. i.e. Illustrate what about palladium also its use in automobile manufacturing creates its high or its low elasticity of demand?