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?

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Brown Sugar

12 April, 04:06

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?

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Alfred Lin · Answer 1

This is a situation of derived demand. The demand for electronics is derived from that of rare earth metals.

So if the price of extraction of rare earth metals increases, supply will not meet demand, prices of rare earth metals will go up.

Since demand for electronics is derived from that of rare earth metals, the price of electronics will go up to accommodate the price change of the rare earth metals.