See America’s War Machine Runs on Rare-Earth Magnets. China Owns That Market: U.S. defense needs are pushing revival effort after decades of deindustrialization by Jon Emont of The WSJ.
Rapidly increasing production of a certain good in a short period of time leads to increasing opportunity costs as less capable resources have to be switched over from some other productive activity (capital has to be re-tooled and workers retrained (this article specifically mentions this). All of that adds costs that were not there before. So it actually costs more to produce additional units, on average. After excerpts from the article, there is a numerical example.
"The Defense Department in the past few years has committed more than $450 million toward rare earths and the magnets they power. The Energy Department is offering its own incentives because the magnets are also critical for electric vehicles.
The funding is helping a German magnet-maker set up its first North American factory, which broke ground in March, two decades after its last U.S. factory shut down. The facility, in Sumter, S.C., will buy rare earths locally. Those supplies could come from other projects that are receiving government funding—such as processing plants coming up in California and Texas, owned by American and Australian miners, respectively.
Their highest hurdle is low Chinese prices. A U.S. Commerce Department probe in 2022 found that China’s dominant position enabled it to set prices low enough to make production unsustainable for competitors.
In the West, mines and processing facilities face more regulations. There are only a small number of experts left in the field, requiring pricey workarounds such as importing foreign talent, sending Americans abroad for training and automating." [this is where the increasing cost comes in-you pay a salary for each additional worker but you have to pay more on top of that for the extra training and that means each additional unit costs more to make]
"Pushing defense suppliers to buy more-expensive magnets that are made in the U.S. would raise costs and have a knock-on effect, potentially affecting how many defense systems such as submarines and jet fighters the Defense Department is able to buy, Schwartz said.
The other question is who else will buy the magnets. Defense demand, while considerable, isn’t enough. Other industries that use magnets, such as makers of EVs, wind turbines and MRI machines, would need to be willing to pay more today in exchange for a reliable supply chain.
At least one major player, General Motors, has agreed to buy American-made magnets when production starts. Some others say they are interested."
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Here are some basic terms that economists use to discuss this issue:
Opportunity Cost-The value of
the best foregone alternative. There is no such thing as a free lunch.
If we want to build one more skyscraper, we may have to give up one
submarine, since there may not be enough steel to go around (steel is
scarce!).
The law of increasing opportunity cost-As
more of a particular good is produced, the opportunity cost of its
production rises.
Why is the law of increasing opportunity cost true? Different resources
are better suited to different productive activities. This is just about
the same as saying people have different abilities, like some are more
entrepreneurial and some are more bureaucratic.
Worker
|
Candles
|
Shoes
|
I
|
7
|
3
|
II
|
6
|
4
|
III
|
5
|
5
|
IV
|
4
|
6
|
V
|
3
|
7
|
Combination
|
Candles
|
Shoes
|
A
|
25
|
0
|
B
|
22
|
7
|
C
|
18
|
13
|
D
|
13
|
18
|
E
|
7
|
22
|
F
|
0
|
25
|
Change
|
Candles Given Up
|
Shoes Gained
|
Candles per Shoe
|
A to B
|
3
|
7
|
0.429
|
B to C
|
4
|
6
|
0.667
|
C to D
|
5
|
5
|
1.000
|
D to E
|
6
|
4
|
1.500
|
E to F
|
7
|
3
|
2.333
|
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