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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
Answer
To illustrate the changes in the market for cobalt, draw a supply and demand diagram.
- Start by sketching the initial supply curve (S) and demand curve (D) to indicate the original equilibrium price and quantity.
- As new mines have opened in the DRC, which increases the supply of cobalt, represent this with a rightward shift of the supply curve to S1.
- Concurrently, if expectations of future profitability decreased or the demand from China dropped due to subsidy cuts, illustrate this with a leftward shift of the demand curve to D1.
- Label the new equilibrium price (P1) and quantity (Q1) that reflect the changes in supply and demand, showing a decrease in price.
Step 2
Between June 2018 and June 2019 the price of cobalt fell by:
Answer
To calculate the percentage change in price:
- Identify the price in June 2018 (let's assume it was 15).
- The formula for percentage change is:
ext{Percentage Change} = rac{ ext{New Price} - ext{Old Price}}{ ext{Old Price}} imes 100 - Insert the values:
ext{Percentage Change} = rac{15 - 40}{40} imes 100 = rac{-25}{40} imes 100 = -62.5\%
Thus, the price of cobalt fell by 62.5%, making option C the correct answer.