Rare earth metals are used to manufacture some important electronic components in popular products like cell phones. These metals are not really rare, but they are expensive to extract from the ground. What happens to the market for the rare earth metals if these extraction costs increase?

Question

Quizplus · Accepted Answer

If extraction costs increase, it becomes more expensive for suppliers to extract and sell the rare earth metals. This will likely lead to a decrease in supply, which will shift the supply curve leftward. As a result, the price of the rare earth metals will increase, and the quantity demanded will decrease, potentially leading to a leftward shift in the demand curve as well. However, in the short run, the demand for the electronic components may be relatively inelastic, meaning that a decrease in supply could result in a large increase in price without a corresponding decrease in quantity demanded.

Rare Earth Metals Are Used to Manufacture Some Important Electronic