The main civil use of uranium is to fuel uclear power plants. Nucear power plants provide electricity at a high fixed cost, but very low marginal cost. By contrast, plants fuelled by natural gas have relatively lower fixed costs, but higher marginal costs. In the late 1990s, although Western consumption exceeded production by 30,000 metric tons per year, the price of uranium fell owing to estimated Russian stockpiles of 545,000 tons.
a. Why is the short-run demand for uranium relatively inelastic? Explain with a graph.
b. What does the long gestation period of nuclear power plants imply for the difference in time between the short and long runs n the demand for uranium? illustrate with a graph.