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Cobalt is a key metal used in the batteries of electric cars - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 1
Question 2
Cobalt is a key metal used in the batteries of electric cars. China is the world’s largest producer of electric cars but has recently cut subsidies to its manufactur... show full transcript
Worked Solution & Example Answer:Cobalt is a key metal used in the batteries of electric cars - Edexcel - A-Level Economics A - Question 2 - 2021 - Paper 1
Step 1
Supply and demand diagram
Answer
To illustrate the change in the price of cobalt, we first need to draw the supply and demand curves.
- Supply Curve Shift: Given new mines opened, there would be an increase in the supply of cobalt. This results in a rightward shift of the supply curve from S to S1.
- Demand Curve Shift: Meanwhile, the decrease in Chinese subsidies could lead to a reduced demand for cobalt, causing a leftward shift of the demand curve from D to D1.
- New Equilibrium: The new equilibrium price, represented by the intersection of the new supply and demand curves (E1), is lower than the previous equilibrium price (E). This visually shows that the price of cobalt has fell between June 2018 and June 2019.
Step 2
Between June 2018 and June 2019 the price of cobalt fell by:
Answer
To calculate the percentage decrease in the price of cobalt, we analyze the graph:
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Identify the price in June 2018, which is approximately $40.
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Identify the price in June 2019, which is approximately $15.
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The decrease in price is calculated as follows:
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The percentage decrease is then:
Thus, the correct answer is C. 62.5%.