common mistakes on the ap micro exam · consumer and producer surplus √ the value in excess of...
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COMMON MISTAKES ON THE AP MICRO EXAM
A change in Demand versus a change in the Quantity Demanded
Change in Demand
√ Moves the curve
•Income
•Future Expectations
•# of Buyers
•Consumer Information
•Taste and Preference
•Substitues and Complements
Change in Quantity Demanded
√ Moves Along the SAMEcurve
• Caused only by Price change.
Consumer and Producer Surplus√ The value in excess of the purchase price
√ The income the firm gets in excess of its marginal costs
D
SP1
Qe
P
Q
CS
PS
Price Floor and Price Ceiling
D
S
Pc Shortage
P1
Qe
P
Q
PfSurplus
Ed = % change in Qd% change in P
PRICE
Elasticity
E c = % Δ Quantity of X%Δ Price of Y
CROSS
INCOME E i = % Δ Quantity%Δ Income
Dead Weight Loss When the Price is Below P*
Q/t
P
Demand
SupplyA
P* C
0 Q’ Q*
E
FP’
B
• Value to the Consumer: • 0AEQ’
• Consumers Pay Producers: • OP’FQ’
• The Variable Cost to Producers: • OBFQ’
• Consumer Surplus: • P’AEF
• Producer Surplus: • BP’F
• DWL• FEC
Tax RevenuesEfficiency Loss of a TaxRole of ElasticitiesQualifications
•Redistributive Goals•Reducing Negative Externalities
TAX INCIDENCE ANDEFFICIENCY LOSS
Perfectly Inelastic Demand
D
Q/t
P
S2
Q1=Q2
P2 S1
P1
Perfectly Elastic Demand
Q/t
P
D
S2
P1=P2
Q2
S1
Q1
Inelastic Demand
(at moderate prices)
P
Q/t
D
S1
P1
Q1Q2
S2
P2
Elastic Demand(at moderate prices)
Q/t
P
Q1
D
S1
P1
S2
P2
Q2
DIMINISHING RETURNS
• Explanation:
As additional units of a variable input (labor) are added to a fixed input (capital), at some point the additional output resulting from the addition of one more unit of variable input declines. This decline is referred to as diminishing marginal return. At this point, total product increases at a decreasing rate.
• Rationale:
As the variable input increases and the fixed input, by definition, remains the same, there is less fixed input with which the variable input can be combined.
Example: As more workers are added but capital remains the same, there is less
capital per worker.
Law of Diminishing Returns
SHORT-RUN PRODUCTIONRELATIONSHIPS
Tota
l Pro
duct
, TP
Quantity of Labor
Aver
age
Prod
uct,
AP,
and
mar
gina
l pro
duct
, MP
Quantity of Labor
Total Product
MarginalProduct
AverageProduct
IncreasingMarginalReturns
Law of Diminishing Returns
SHORT-RUN PRODUCTIONRELATIONSHIPS
Tota
l Pro
duct
, TP
Quantity of Labor
Aver
age
Prod
uct,
AP,
and
mar
gina
l pro
duct
, MP
Quantity of Labor
Total Product
MarginalProduct
AverageProduct
DiminishingMarginalReturns
Law of Diminishing Returns
SHORT-RUN PRODUCTIONRELATIONSHIPS
Tota
l Pro
duct
, TP
Quantity of Labor
Aver
age
Prod
uct,
AP,
and
mar
gina
l pro
duct
, MP
Quantity of Labor
Total Product
MarginalProduct
AverageProduct
NegativeMarginalReturns
Two Approaches to Find the PROFIT MAXIMIZING
QUANTITY ( PRICE)
$1,8001,7001,6001,5001,4001,3001,2001,1001,000
900800700600500400300200100
0
Tota
l rev
enue
and
tota
l cos
tTotal
Revenue
TotalCost
MaximumEconomic
Profits$299
Break-Even Point(Normal Profit)
Break-Even Point(Normal Profit)
1 2 3 4 5 6 7 8 9 10 11 12 13 14
TOTAL REVENUE-TOTAL COST APPROACH
$200
150
100
50
0
Cos
t and
Rev
enue
1 2 3 4 5 6 7 8 9 10
MC
MR
AVCATC
Economic Profit
$131.00
$97.78
MARGINAL REVENUE-MARGINAL COST APPROACH
Profit Maximization Position
Key Micro Formulas
RELATIONSHIP ECONOMIC INTERPRETATION
MR = MC When MR = MC, we know that the firm has chosen the output that maximizes profits.
P > ATC Firm is earning ECONOMIC PROFITS
P = ATC Firm is earning NORMAL PROFIT (Break-Even Point) (economic profit = 0)
P < ATCP > AVC
Loss Minimization
P = AVC SHUTDOWN POINT (firm will loseTFC if they produce or Shutdown and produce 0.
P < AVC Firm does not produce
Finding the Perfectly Competitive Firm’s
Supply Curve
Cos
t and
Rev
enue
, (do
llars
)MC
MR1
AVC
ATC
MARGINAL REVENUE-MARGINAL COST APPROACH
Quantity Supplied
MR2
MR3
MR4
MR5
P1
P2
P3
P4
P5
Q2 Q3 Q4 Q5
Marginal Cost & Short-Run Supply
Do notProduce –Below AVC
Cos
t and
Rev
enue
, (do
llars
)MC
MR1
MARGINAL REVENUE-MARGINAL COST APPROACH
Quantity Supplied
MR2
MR3
MR4
MR5
P1
P2
P3
P4
P5
Q2 Q3 Q4 Q5
Marginal Cost & Short-Run SupplyYields theShort-Run
Supply Curve
Supply
NoProductionBelow AVC
Long Run Equilibrium (Perfectly Competitive
Firm)
• Productive Efficiency• Allocative Efficiency
P MR
Q
MCATC
Quantity
Pric
e
Price = MC = Minimum ATC(normal profit)
LONG-RUN EQUILIBRIUM FOR A COMPETITIVE FIRM
How an Increase in Demand Changes Long-Run Equilibrium for the
Firm and Industry
Temporary Profits and the ReestablishmentOf Long-Run Equilibrium
S1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$605040
$605040
PROFIT MAXIMIZATION IN THE LONG-RUN
MR
D1
An increase in demand increases profits…
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$605040
$605040
PROFIT MAXIMIZATION IN THE LONG-RUN
D2
EconomicProfits
S1
New Competitors increase supply and lowerPrices decrease economic profits
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$605040
$605040
PROFIT MAXIMIZATION IN THE LONG-RUN
D2
Zero EconomicProfits
S1S2
How an Decrease in Demand Changes Long-Run Equilibrium for the
Firm and Industry
Decreases in demand, Losses and the Reestablishment of Long-Run Equilibrium
S1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$605040
$605040
PROFIT MAXIMIZATION IN THE LONG-RUN
D1
MR
A decrease in demand creates losses…
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$605040
$605040
PROFIT MAXIMIZATION IN THE LONG-RUN
D2
EconomicLosses
S1
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$605040
$605040
PROFIT MAXIMIZATION IN THE LONG-RUN
D2
Return to ZeroEconomic Profits
S1
S3
Competitors with losses decrease supply andprices return to zero economic profits
Price and Marginal Revenue for a
Monopoly
MONOPOLY REVENUES & COSTS
Dol
lars
Dol
lars
$200
150
200
50
$750
500
250
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q
MONOPOLY REVENUES & COSTS
Dol
lars
Dol
lars
$200
150
200
50
$750
500
250
MR
Elastic
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
DQ
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
TR
Q
MONOPOLY REVENUES & COSTS
Q
Dol
lars
Dol
lars
$200
150
200
50
$750
500
250TR
MR D
InelasticElastic
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18Q
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Failing to remember how to shade the area of ECONOMIC PROFIT
THE PROFIT-MAXIMIZING
POSITION OF A MONOPOLY
Profit Maximization Under Monopoly
D
MC
ATC
MR
$94
$122Profit
MR = MC
ProfitPer Unit
OUTPUT AND PRICE DETERMINATION
Q
200
175
150
125
100
75
50
25
0 1 2 3 4 5 6 7 8 9 10
Pric
e, c
osts
, and
reve
nue
Remember the MR=MC Rule?
And the Shading of Economic Losses
LOSS MINIMIZATION OF THE IMPERFECT
COMPETITOR
Loss Minimization Under Monopoly
D
MCATC
MR
APm
Loss
MR = MC
LossPer Unit
OUTPUT AND PRICE DETERMINATION
Q
200
175
150
125
100
75
50
25
0 1 2 3 4 5 6 7 8 9 10
Pric
e, c
osts
, and
reve
nue
AVC
Qm
V
Since Pm exceeds AVC,the firm will produce
Monopoly
vs.
Competition
PURE COMPETITION
MONOPOLY
MR = MC
The firms maximizes profit.
MR = MC
The firm maximizes profit.P = ATC
The firms just BREAK-EVEN (NORMAL PROFITS) in the Long Run.
P > ATC
Long Run ECONOMIC PROFITS.
P = min ATC
Firm is forced to operate with maximum productive efficiency.
--------------------------------------PRODUCTIVE EFFICIENCY
(Least-Cost Method Production)
P > min ATC
Firm is not forced to operate with maximum productive efficiency.
PRODUCTIVE INEFFICIENCY
(Least-Cost Method Production not necessary)
P = MC
There is an optimal allocation of resources.
ALLOCATIVE EFFICIENCY
P > MC
There is an UNDERALLOCATION of resources.
ALLOCATIVE INEFFICIENCY
P = MR
The firm’s DEMAND CURVE is infinitely ELASTIC.
P > MR
The firm’s DEMAND CURVE is less than infinitely ELASTIC.
Q
INEFFICIENCY OF PURE MONOPOLYP
DMR
S = MC
Pc
Pm
QcQm
At MR=MCA monopolistwill sell less
units at ahigher price
than incompetition
An industry in pure competitionsells where supply and
demand are equal
Q
INEFFICIENCY OF PURE MONOPOLYP
DMR
S = MC
Pc
Pm
QcQm
At MR=MCA monopolistwill sell less
units at ahigher price
than incompetition
Monopoly pricing effectivelycreates an income transfer from
buyers to the seller!
Not being able to GRAPH a Natural Monopoly and the Socially- Optimal
Outputand
Fair-Return Output Levels
Natural MonopoliesRate RegulationSocially Optimum Price
P = MCFair-Return Price
P = ATCDilemma of Regulation
REGULATED MONOPOLY
Graphically…
REGULATED MONOPOLY
Q
DMR
MCATC
P
Pric
e an
d C
osts
Monopoly PriceMR = MC
Qm
Pm
REGULATED MONOPOLY
Q
DMR
MCATC
P
Pric
e an
d C
osts
Socially-OptimumPrice
P = MC
Qr
Pr
REGULATED MONOPOLY
Q
DMR
MCATC
P
Pric
e an
d C
osts
Fair-Return PriceNormal Profit Only
Qf
Pf
REGULATED MONOPOLY
Q
DMR
MCATC
P
Pric
e an
d C
osts
MR = MC
Fair-Return Price
Socially-OptimumPrice
Qm Qf Qr
Dilemma of RegulationWhich Price?
Pm
Pf
Pr
Single PRICE Monopoly
vs.
Price Discrimination
ConditionsMonopoly PowerMarket SegregationNo Resale
ConsequencesMore ProfitMore Production
PRICE DISCRIMINATION
Graphically…
QDMR
MC
ATC
P
Q1
Pric
e an
d C
osts
Economic profits witha single MR=MC
price
PRICE DISCRIMINATION
QD
MC
ATC
P
Q1
Pric
e an
d C
osts
PRICE DISCRIMINATION
Q2
A perfectly discriminatingmonopolist has MR=D,producing more product
and more profit!
MR=D
QD
MC
ATC
P
Q1
Pric
e an
d C
osts
Economic profits withprice discrimination
PRICE DISCRIMINATION
Q2
MR=D
Monopolistic Competition
What is it?Monopoly?
Competition?
D
MR
P1
ATCPr
ice
and
Cos
ts
Q1
EconomicProfits
Expect New Competitors
PRICE AND OUTPUT INMONOPOLISTIC COMPETITION
Quantity
A1
MC
D
MR
P1
ATCPr
ice
and
Cos
ts
Q1
EconomicProfits
Expect New Competitors
PRICE AND OUTPUT INMONOPOLISTIC COMPETITION
Quantity
A1
New competition drives down theprice level – leading to economic
losses in the short run
MC
D
MR
MC
P2
ATCPr
ice
and
Cos
ts
Q2
EconomicLosses
PRICE AND OUTPUT INMONOPOLISTIC COMPETITION
Quantity
A2
D
MR
MC
P2
ATCPr
ice
and
Cos
ts
Q2
EconomicLosses
PRICE AND OUTPUT INMONOPOLISTIC COMPETITION
Quantity
A2With economic losses, firms willexit the market – Stability occurswhen economic profits are zero
D
MR
MC
P3= A3
ATCPr
ice
and
Cos
ts
Q3
PRICE AND OUTPUT INMONOPOLISTIC COMPETITION
Quantity
Long-Run EquilibriumNormalProfitOnly
NOW,
for theRESOURCE (Factor)
MARKETS
Remember…
Product Market:MR = MC
Resource Market:MRP = MFC
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210
8642R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01
07 7 $2
2$ 014
$ 14
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210
8642R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
012
07
13
76
$222
$ 01426
$ 1412
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210
8642R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
0123
07
1318
765
$2222
$ 0142636
$ 141210
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210
8642R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
07
131822252728
7654321
$22222222
$ 014263644505456
$ 1412108642
The purely competitiveseller’s demand fora resource
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210
8642R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Pure CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
07
131822252728
7654321
$22222222
$ 014263644505456
$ 1412108642
The purely competitiveseller’s demand fora resource
Now, consider the caseof resource demand under
Imperfect Competition
Units ofResource
TotalProduct(Output)
Marginalproduct
(MP)Product
PriceTotal
Revenue
MarginalRevenue
Product (MRP)
]]]]]]
0 1 2 3 4 5 6 7 8 Q
P 141210
8642R
esou
rce
pric
e(w
age
rate
)
Quantity of resource demanded
Imperfect CompetitionMRP AS A DEMAND SCHEDULE
]]]]]]
01234567
07
131822252728
7654321
$2.802.602.402.202.001.851.751.65
$ 018.2031.2039.6044.0046.2547.2546.20
$ 18.2013.008.404.402.251.00-1.05
The imperfectlyCompetitive seller’sdemand for a resource
LABOR MARKETS:
Wage Determination
PURELY COMPETITIVELABOR MARKET
Purely competitive labor market:Many FirmsNumerous Qualified Workers“Wage Taker” BehaviorMarket Demand for LaborMarket Supply of Labor
Non-LaborCosts
LaborCosts
LABOR SUPPLY AND DEMANDPURELY COMPETITIVE MARKET
Labor Market
S
D = MRP(Σ mrp’s)
Wc
(1000)
Individual Firm
S = MRC
d = mrp
Wc
Quantity of Labor
Wag
e R
ate
(dol
lars
)
Quantity of Labor
($10)
(5)
$10$10$10$10$10$10
IncludesNormalProfit
Wag
e R
ate
(dol
lars
)S
Quantity of Labor
MONOPSONISTICLABOR MARKET
In monopsonyMRC lies abovethe supply curve
Wag
e R
ate
(dol
lars
)
MRP
S
Wm
Quantity of Labor
MRC
Qm
MONOPSONISTICLABOR MARKET
MRP = MRC
Qm units oflabor hired
Wag
e R
ate
(dol
lars
)
MRP
S
Wm
Quantity of Labor
MRC
Wc
Qm Qc
The competitivesolution would
result in a higherwage and greater
employment
MONOPSONISTICLABOR MARKET
EXTERNALITIES
Negative
Positive
COST-BENEFIT ANALYSISMarginal Cost = Marginal Benefit Rule
Spillover Costs
Overallocation
Spillover BenefitsUnderallocation
Externalities
P
Q
SPILLOVER COSTS AND BENEFITSIllustrating a Negative Externality
D
0
Spillovercosts
St
S
Overallocation
Q0 Qe
P
Q
SPILLOVER COSTS AND BENEFITSIllustrating a Positive Externality
0 Qe Q0
D
Dt
SpilloverBenefits
St
Underallocation
Taxation Concepts
APPORTIONING THETAX BURDEN
Benefits-Received Principle
Ability-to-Pay Principle
• Progressive Tax• Regressive Tax• Proportional Tax
TAX APPLICATIONS:
• Personal Income TaxProgressive
• Sales TaxRegressive
• Corporate Income TaxProportional - Regressive
• Payroll TaxesRegressive
• Property TaxesRegressive
Identify whether progressive, regressive, or proportional
Price Supports SurplusesSubsidies
EFFECT OF PRICE SUPPORTS
Pe
D
S
QeQc Qs
SurplusPs
Surplus beingcreated by the
subsidies
Q
P
Price SupportLevel
International Trade• Comparative Advantage
• Case for Free Trade
• Export Supply
• Import Demand
Total output will be greatest whenEach good is produced by the nationthat has the lowest domesticopportunity cost for that good.
U.S has comparative advantage in wheat
Brazil has comparative advantage in coffee
Principle of Comparative AdvantagePRODUCTION POSSIBILITIES
Terms of Trade
Gains From TradeImproved Options
Principle of Comparative AdvantagePRODUCTION POSSIBILITIES
Trading Possibilities LineGraphically…
PRODUCTION POSSIBILITIES
A
B
Cof
fee
(tons
)
Cof
fee
(tons
)
45
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
05 10 15 20 25 30 5 10 15 20
Wheat (tons) Wheat (tons)
Curve For Each CountryUnited States Brazil
TRADING POSSIBILITIES LINES
Cof
fee
(tons
)
Cof
fee
(tons
)
45
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
05 10 15 20 25 30 5 10 15 20
A
B
Tradingpossibilities line
Tradingpossibilities line
Wheat (tons) Wheat (tons)
The Gains from TradeUnited States Brazil
TRADING POSSIBILITIES LINES
Cof
fee
(tons
)
Cof
fee
(tons
)
45
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
05 10 15 20 25 30 5 10 15 20
A
B
Tradingpossibilities line
Tradingpossibilities line
A’
B’
Wheat (tons) Wheat (tons)
The Gains from TradeUnited States Brazil
TRADING POSSIBILITIES LINES
Cof
fee
(tons
)
Cof
fee
(tons
)
45
40
35
30
25
20
15
10
5
0
30
25
20
15
10
5
05 10 15 20 25 30 5 10 15 20
A
B
Tradingpossibilities line
Tradingpossibilities line
A’
B’
Wheat (tons) Wheat (tons)
The Gains from TradeUnited States Brazil
The Case ForFree Trade
U.S. EXPORT SUPPLYAND IMPORT DEMAND
U.S. DomesticAluminum Market
U.S. Export SupplyAnd Import Demand
Dd
Sd
If the world priceexceeds the U.S.
price by 25 cents...
$1.50
1.25
1.00
.75
.50
.25Pric
e (p
er p
ound
; U.S
. dol
lars
)
10050 75 125 150Quantity of Aluminum
10050Pr
ice
(per
pou
nd; U
.S. d
olla
rs)
$1.50
1.25
1.00
.75
.50
.25
Quantity of Aluminum
EXPORTS = 50
U.S. EXPORT SUPPLYAND IMPORT DEMAND
U.S. DomesticAluminum Market
U.S. Export SupplyAnd Import Demand
$1.50
1.25
1.00
.75
.50
.25
10050
DdPric
e (p
er p
ound
; U.S
. dol
lars
)
Pric
e (p
er p
ound
; U.S
. dol
lars
)
10050 75 125 150
SURPLUS = 50
$1.50
1.25
1.00
.75
.50
.25
If the world pricegoes further up...
Sd
Quantity of Aluminum Quantity of Aluminum
EXPORTS = 50
EXPORTS = 100
U.S. EXPORT SUPPLYAND IMPORT DEMAND
U.S. DomesticAluminum Market
U.S. Export SupplyAnd Import Demand
$1.50
1.25
1.00
.75
.50
.25
10050
DdPric
e (p
er p
ound
; U.S
. dol
lars
)
Pric
e (p
er p
ound
; U.S
. dol
lars
)
10050 75 125 150
SURPLUS = 50
SURPLUS = 100 $1.50
1.25
1.00
.75
.50
.25
If world pricesfall below $1.00...
Sd
U.S.exportsupply
Quantity of Aluminum Quantity of Aluminum
SHORTAGE = 50
U.S. EXPORT SUPPLYAND IMPORT DEMAND
U.S. DomesticAluminum Market
U.S. Export SupplyAnd Import Demand
$1.50
1.25
1.00
.75
.50
.25
10050
DdPric
e (p
er p
ound
; U.S
. dol
lars
)
Pric
e (p
er p
ound
; U.S
. dol
lars
)
10050 75 125 150
SURPLUS = 50
SURPLUS = 100 $1.50
1.25
1.00
.75
.50
.25
Sd
EXPORTS = 50
EXPORTS = 100
IMPORTS = 50
U.S.exportsupply
Quantity of Aluminum Quantity of Aluminum
SHORTAGE = 50
SHORTAGE = 100
U.S. EXPORT SUPPLYAND IMPORT DEMAND
U.S. DomesticAluminum Market
U.S. Export SupplyAnd Import Demand
$1.50
1.25
1.00
.75
.50
.25
10050
DdPric
e (p
er p
ound
; U.S
. dol
lars
)
Pric
e (p
er p
ound
; U.S
. dol
lars
)
10050 75 125 150
SURPLUS = 50
SURPLUS = 100
U.S.exportsupply
EXPORTS = 50
EXPORTS = 100
IMPORTS = 50
IMPORTS = 100
U.S.import
demand
$1.50
1.25
1.00
.75
.50
.25
Sd
Quantity of Aluminum Quantity of Aluminum
CANADIAN EXPORT SUPPLYAND IMPORT DEMANDCanada’s DomesticAluminum Market
Canada’s Export SupplyAnd Import Demand
DdSHORTAGE = 50
$1.50
1.25
1.00
.75
.50
.25
10050
Pric
e (p
er p
ound
; U.S
. dol
lars
)
Pric
e (p
er p
ound
; U.S
. dol
lars
)
10050 75 125 150
SURPLUS = 100
Canadianexportsupply
Canadianimport
demand
$1.50
1.25
1.00
.75
.50
.25
Sd
SURPLUS = 50
Quantity of Aluminum Quantity of Aluminum
EQUILIBRIUM WORLD PRICE ANDQUANTITY OF EXPORTS & IMPORTS
Pric
e (p
er p
ound
; U.S
. dol
lars
)
U.S. exportsupply
U.S. importdemand
Quantity of Aluminum
Canadianexportsupply
Canadian importdemand
10050
$1.50
1.25
1.00
.75
.50
.25
25
.88 Equilibrium