Answer to Question #307438 in Microeconomics for Loid

Question

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. Mention these factors and indicate whether they are demand-side or supply- side factors.

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

Answer 1

a) One reason on the demand side is due to the growing demand because of the locked down consumers who drank more at home increasing the demand for aluminum cans In Guinea as a result of the coup. Demand in America, China, and Europe of aluminum to be used in construction led to the rising prices.

b) One reason on the supply side include supply constraints brought about by fire, which put a large refinery in Jamaica out of action was another reason for the rise in prices of aluminum. Making aluminium consumes a lot of energy, which was affected due to the worker's strike at a smelter in Canada. It made the supply of aluminum to reduce due to the strike, leading to the rise of aluminum prices.