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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
Draw a supply and demand diagram annotated to show a right shift in the supply curve
Answer
To illustrate the market dynamics, draw both the original and new supply curves (S1 and S2) to represent the rightward shift in the supply curve due to new mines being opened. This will result in an increase in supply, leading to a new equilibrium point.
Step 2
Annotate the shift in demand and indicate the new equilibrium price
Answer
Incorporate the demand curve and indicate a leftward shift (D1 to D2) to reflect reduced demand, possibly due to a decrease in subsidies by China. Mark the new equilibrium price at the intersection of the new supply and demand curves.
Step 3
Calculate the price change
Answer
Estimate the price drop from the original price (around 15 per weight). This results in a percentage decrease that can be calculated as:
ext{Percentage decrease} = rac{ ext{Original Price} - ext{New Price}}{ ext{Original Price}} imes 100 = rac{40 - 15}{40} imes 100 = 62.5\%
Thus, the answer for part (b) is C. 62.5%.