This is the reason for fall in the price of palladium in the following months. As per the theory of economics, the price of a commodity increases when its demand increases in the market. Similarly, the price falls in the event of fall in the demand for the same. The same has happened in the case of Palladium. Though Mazda has not announced by when the new technology would be used, the market expected a downfall in the demand for the commodity if automobile industry adopts the new catalyst. Thus, the demand of palladium is changed due to change in non price factor, that is, technology. Therefore the demand curve shifts downwards with no change in supply. Subsequently the price will reduce to reach at a new equilibrium. This phenomenon can be explained using figure 1 below.
Let D1 be the existing demand curve of palladium. When the news of new technology came up, the demand curve shifted to D3. This means that the quantity of Palladium that is demanded by the industry is reduced and so the price also gets reduced to adjust to the change in quantity demanded. Same can also be seen in the case of supply curve figure 2.
(Webshells, 2010) When demand for palladium is reduced, there is an oversupply created in the market. Due to the oversupply the supply curve s0 is shifted to s2. Therefore the price comes down to adjust to the market.
Technological breakthroughs are very much important in automobile industry. Only technology adoption can help automobile companies to reduce the cost of production. Take the case of new innovation by Mazda. As per the technology, palladium usage can be reduced by 90%. Palladium being one of the most expensive metals in the world, the cost saved by the company by adopting this technology is huge. The savings in cost will help the companies to charge less for the cars and thus companies can introduce low cost cars in the market. Tata has done a