The Price of Diamonds Is too High

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“The price of diamonds is too high” This essay discusses the statement “the price of diamonds is too high”; it will analyze the diamond cartel and its history in order to determine the validity of this statement. Various microeconomic theories will be discussed and explained, all of which are involved in the diamond cartel. The Oxford Dictionary defines a cartel as “an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition” [Oxford Dictionaries; unknown]. Therefore, the diamond cartel consists of a group of manufacturers/suppliers of diamonds who come together in order to restrict supply and as a result increase the price of diamonds. This essay will focus, mainly; on the De Beers diamond cartel and how this cartel has led people to believe that diamonds are scarce [“Have you ever tried to sell a diamond?” – Edward Jay Epstein; unknown]. The success of the cartel can be explained using microeconomic theories, such as how a decrease in the supply and an increase in the demand of a product increase its price. The main point of the diamond cartel is to decrease the supply of diamonds (therefore; diamonds seem to be scarce) in order to increase their price. As is shown in the graph below, according to the law of supply, decreasing the supply of a product shifts the supply curve up and left (from supply curve 1 to 2), therefore, changing the equilibrium point (from E1 to E2) and increasing the price of the product (P1 to P2) [Michael Parkin et al.; 2010]. One of the goals of the cartel is to keep a monopoly position that is resilient [Ivona Vogelsang; 2005]. The Oxford Dictionary defines a monopoly as “the exclusive possession or control of the s... ... middle of paper ... ...er. Business Insider. [Online]. Available from: http://www.businessinsider.com/history-of-de-beers-2011-12?op=1. [Accessed: 15 April 2014]. • “Have you ever tried to sell a diamond?” – Edward Jay Epstein. (Unknown). Produced and directed by Ines & Ena Talakic. [YouTube video]. Available from: http://www.youtube.com/watch?v=7Yo6EVP-Trw. • Oxford Dictionaries. (Unknown). Oxford University Press. [Online]. Available from: http://www.oxforddictionaries.com/definition/english/cartel. [Accessed: 14 April 2014]. • Parkin, M., Kohler, M., Lakay, L., Rhodes, B., Saayman, A., Schoer, V., Scholtz, F., Thompson, K. (2010). Global and Southern Perspectives: Economics. Cape Town: Pearson Education South Africa (pty) Ltd. • Vogelsang, I. (2005). The International diamond Cartel. [Online]. Available from: http://are.berkeley.edu/~sberto/debers.pdf. [Accessed: 14 April 2014].
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