MI 441: MINERAL ECONOMICS
ACADEMIC YR: 2017
MRS E. MVULA
TOPICS:
Micro-economics: Factors of production, distribution theories, supply
and demand theories, exhaustible resource scarcity and theory of
mineral supply, theory of the firm, Cost and Profit determination.
Macro-economics: Balance of payments, banking system and supply
of money, Monetary and Fiscal policies, Inflation and Exchange Rate;
index numbers; Taxation and/or depreciation/inflation and their
impacts on investments, Sensitivity and risk analysis, Project
planning, Cost estimation and control.
Mineral Marketing and Pricing: Theory of metal supply, hedging
and risk management in the mining industry. International trade,
Commodity Exchanges, Cartels and trade barriers.
GRADING:
► Assignments: 10%
► Quizzes: 5%
► Tests: 25%
► Final examination: 60%
TEXTS:
1) Ahuja, H.I , (2004), “Macroeconomics”, S. Chand & company, ISBN
81-219-0335-1.
2) Ahuja, H.I , (2004), “Principles of microeconomics” S. Chand &
Company.
3) Class notes handouts
1. BASIC ECONOMIC CONCEPTS
WHAT IS ECONOMICS?
► Definition
► Key issues in the study of economics
► Branches of economics
SOME DEFINITIONS:
Economics asks what goods are produced, how these goods are
produced, and for whom they are produced.
Economics analyses movements in the overall economy – trends in
prices, output, unemployment, and foreign trade. Once such trends
are understood, economics helps develop the policies by which
governments can improve the performance of the economy
Economics is the study of commerce among nations. It helps explain
why nations export some goods and import others, and analyses the
effects of putting economic barriers at national frontiers.
Economics is the science of choice. It studies how people choose to
use scarce or limited productive resources (labour, equipment,
technical knowledge), to produce various commodities (such as
mineral resources, missiles, and concerts).
Economics is the study of money, banking, capital, and wealth.
In a nutshell, “economics is the study of how societies use scarce
Resources to produce valuable commodities and distribute them
among different people”.
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BRANCHES OF ECONOMICS
ECONOMICS = MACROECONOMICS + MICROECONOMICS
What is Macroeconomics?
Studies the functioning of the economy as a whole – examining the economy
through a wide-angle lens. Macroeconomics examines how the level of
growth of output are determined, analyses inflation and unemployment, asks
about the total money supply and investigates why some nations thrive while
others stagnate.
To evaluate the success of an economy’s overall performance, economists
look at four areas:
► Output measured by the Gross Domestic Product (GDP)
► Employment (level of unemployment)
► Price stability
► International trade
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GOALS AND INSTRUMENTS OF MACROECONOMIC
POLICY
Objectives Instruments
(Major goals of macroeconomic policies – (Tools available to accomplish the
wish list) wish list)
Output (as measured by the GDP): Fiscal policy:
High level of output Government expenditure
Rapid growth rate of output Taxation
Employment: Income policies:
High level of employment From voluntary
Low involuntary unemployment guidelines to mandatory
controls
Monetary policy:
Price level stability with free markets Control of money supply
affecting interest rates
International trade: Foreign economics:
Export and import equilibrium Trade policies
(preferably the existence of trade surplus) Exchange-rate
Exchange-rate stability Intervention
(not too strong or too weak)
HOW DOES MACROECONOMICS AFFECT THE MINERAL
SECTOR?
At macro level, government sets sectoral policies (in this case the
national mineral policy) which affect the sector (positively or
negatively depending on its structure and promotional aspects).
Through its fiscal policy. Government fixes taxation that may affect
investment if discriminatory and uncompetitive and reduce
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government earnings if set very low by the state (the case of Zambian
copper mining industry).
Trade policies may affect the manner in which mineral products are
traded. Do mine owners retain all the forex? Do they market through
government agencies? No limitations on externalization of profits?
How is the forex rate fixed? Free floating or government controlled?
Exchange rate mechanisms affect trade.
Do employment policies restrict expatriate workers?
Interest rates have a bearing on the cost of capital and hence affect
investment in the sector.
MICROECONOMICS
What is Microeconomics?
Analyses the behaviour of individual components of the economy like
industries, firms and households. The study is about among other
things, how individual prices are set, consider what determines the
price of land, labour and enquire into the strengths and weaknesses of
the market mechanism. Microeconomics is economics through the
microscope.
In reviewing the subject of microeconomics, we examine the
mining firm and the market place.
► The concept of the market place
► How a market functions
► The firm and its corporate strategy
► Cost functions and economies of scale:
Cost-output relationships in short-run
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Cost-output relationships in long-run
Difference between Microeconomics and
Macroeconomics
Difference between Micro & Macro Economics
Microeconomics Macroeconomics
1. Microeconomics studies the 1. Macroeconomics studies the
economic behavior of individual economy as a whole.
entities such as individuals,
households, firms, industry, etc.
2. Microeconomics explains the 2. Macroeconomics explains about
inter-relationships between the total national income,
economic units like consumers, aggregate demand and supply,
commodities, firms, industries, general price level, total
markets, etc. employment, etc.
3. Microeconomics analyzes the 3. Macroeconomics analyzes the
conditions for efficiency in fluctuations and trends in the
consumption and production. overall economic activity in a
country and/or between various
countries in the world.
4. Microeconomic theory describes 4. Macroeconomic theory describes
product pricing which explains the theory of income and
the theories of demand, employment to explain economy-
production, and cost; factor wide consumption and investment,
pricing which explains concepts the theory of the general price
of wages, rent, interest, and level and inflation, theories of
profit; and the theory of economic growth, and the macro
economic welfare. theory of distribution.
5. Understanding microeconomics 5. Macro economic study is vital in
helps a great deal in individual the formulation and execution of
decision making i.e., managerial economic policies by government.
decision-making.
6. Microeconomic analysis helps in 6. Macroeconomic analysis includes
addressing the problems related study of national aggregates of
to the quantity to be produced, output, income, expenditure,
the procedure to be followed for savings and investment.
production of goods, and the
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final consumers for the goods
produced.
