Sectoral Supply of Minerals of Varying Quality
We Present a Model of a Mineral Producing Sector Where Irreversible Investment in Capacity and the Presence of Orebodies Which Differ in Quality and Volume Help Explain Some Important Stylized Facts. in Particular We Find That, While Deposits Are Exhausted in Declining Order of Grade, More Than One Grade of Ore May Be Exploited At One Time and Extraction Periods Must Overlap. the Price May Rise Or Diminish But Is Likely to Diminish At First (Young Industry) and Must Eventually Rise, Although At Less Than the Interest Rate (Unless Demand Expands Rapidly). Such Secular Trends, However, Are Associated with Short-Run Fluctuations Due to Entry and Exhaustion of Deposits. the Cyclicality of Resource Prices Is Reinforced by the Fact That Mines Keep Producing At Capacity When Price Is Falling.
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