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Economics And Magnesium

Introduction
Magnesium production continues to rise on a global scale and has become a dominant product in the marketplace. Automotive, airline, and many other industries are turning to magnesium for parts due to its lightweight properties and the fact that, when properly alloyed, magnesium can also meet many strength requirements. In today’s business setting many companies are looking for ways to be environmentally responsible, and magnesium is playing a large part in that effort, not only due to its lighter weight but also because magnesium is easily recyclable at only a fraction of the cost of other metals. The economy affects many industries including the magnesium industry. This paper will discuss the impact of: shifts and price elasticity of supply and demand, positive and negative externalities, wage inequality, and monetary and fiscal policies on the magnesium industry.
Magnesium Industry
The demand for magnesium will continue to rise as more companies realize the environmental benefits of using magnesium over that of aluminum or zinc. Magnesium processors must be careful in their pricing however, to ensure continued interest in the product (Clow, 1996). Price elasticity refers to “how much the quantity demanded of a good responds to a change in price. Demand for a good is said to be elastic if the quantity demanded responds substantially to change in price” (Mankiw, 2004). Magnesium is price elastic because there are substitutes available and if the price of magnesium rises too high customers will seek other materials as a substitute. According to Rick Delorme of Magnesium Elektron N.A., “Even though we are a monopoly in magnesium photo-electric plate, our customers will return to aluminum and zinc if we raise our prices or terms higher than they are willing to pay (personal communication, April 15, 2008).” The benefits of using magnesium are substantial and the price continues to climb with magnesium in its purist form rising from $1.50 per pound to...