Question

Start with the cobalt (used in electric car batteries) market in equilibrium.  Then, there is a large increase in the production of electric cars while there is political unrest (leading to less mining) in the Congo which is the major source of cobalt.  What happens to the market equilibrium?

Answer 1

The use of cobalt in electric vehicle batteries has been raised as a concern, given the worker exploitation in mining locations such as the Congo. While electric car batteries do use cobalt, the largest use of cobalt comes from the portable consumer electronics industry.Electric vehicle manufacturers, led by Tesla, are transitioning away from their reliance on cobalt.The cobalt market is a market that has frequent supply shortages and crises.The cobalt market will continue to make incremental adjustments over time as periodic short run price spikes occur with the corresponding supply crisis.The move of the cobalt market to a dominant end use may make the market even more cyclical and prone to supply crises.If the market price is above the equilibrium price,quantity supplied of electric cars is greater than quantity demanded of cobalt..Therefore ,market price will fall.