South-Western College Publishing - Economics  
Live by the coal, die by the coal.
Subject Coal-producing regions in China must find new energy sources as the coal runs out.
Topic Supply and demand
Key Words

coal, tourism, supply, demand, price, unemployment, China

News Story

Chinese coal-producing areas, such as Datong province, must re-think their reliance on the mineral, as its supplies begin to run out. The village of Jinhuagong is attempting to turn its mines into tourist attractions, attempting to lure people visiting the nearby Buddhist art at the Yungang grottoes. By offering tours through the mines, local people hope to stimulate the local economy, currently depressed by the dwindling coal.

The region's vulnerability to coal has been demonstrated before, as prices, and therefore coal output, slumped in 1999. Unemployment in the region currently stands at 20% in some places, having lost about 100,000 mining jobs, and about 47,000 miners in the region live near the poverty level. The sincere hope is that tourism will bring productivity and income back to the region.

Questions
1.

In this instance, demand for labor is a derived demand. Show how this phenomenon of derived demand operates to cause the unemployment in some sections of China? Use a graph of labor supply and labor demand to illustrate your answer.

2. Illustrate with a graph of supply and demand what is happening in the market for coal in China.
3. What kind of negative or positive externalities arise as a result of this coal shortage?
Source "Going Under," The Economist, 12 May 2005.

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