Answer to Question #305722 in Microeconomics for kobby

Question

Problem two: Aluminium pricing

For this question, refer to the article from The Economist magazine titled “A coup in

Guinea adds fuel to aluminium’s red-hot rally”.

a) The article identifies a number of factors behind the recent increase in the price of

aluminium.Mentionthesefactorsandindicatewhethertheyaredemand-sideorsupply-

side factors.

2

b) With the aid of a well-labeled diagram, illustrate the effects of the factors identified

in part (a) above on the equilibrium price and quantity of aluminium. Pay attention to

the statement in the article that “Supply constraints, however, have been more

important”whendrawingyourdiagram

Answer 1

[a] An increase in the number of the consumers in the market. Recently, there has been a tremendous growth in the in demand for the aluminum for the construction purposes. The countries like the America, China and the Europe have developed plans to spend more generously on infrastructure hence further bolstering the demand.

This is demand side factor

The increase in the demand for the complimentary products. The demand for the electric vehicles which contain a bite more aluminum than conventional cars has pushed up the demand for the Aluminum metal.

This is demand side factor

The shortage of the aluminum supply in the world markets. In august, fire put a large refinery in Jamaica out of action, Rio Tinto has experienced workers strike at a smelter in Canada and other disruptions in China have increased the demand for this metal in Guinea hence supply constraints have been important.

This is a supply side factor.

[b]

From the graph, the demand curve has shifted from D to D1. This is happening because of the supply constraints hat have greatly experienced in the in other competitive world market like Canada, Jamaica and China as mentioned above hence the statement that says, 'Supply constraints , however ,have been more important'.