COMMON MISTAKES
ON THE AP MICRO
EXAM
Compiled by:
John Ostick
Malvern Prep
Malvern, PA 19355
Consumer and
Producer Surplus
C o n s u m e r a n d P ro d u c e r
S u rp lu s
• C o n s u m e r S u rp lu s : th e va lu e yo u g e t th a t is
in e xce s s o f w h a t yo u p a y to g e t it
– O n a g ra p h , c o n s u m e r s u rp lu s is th e a re a b e lo w
th e d e m a n d c u rve a n d a b o ve th e p ric e lin e .
• P ro d u c e r S u rp lu s : th e m o n e y th e firm g e ts
th a t is in e xce s s o f its m a rg in a l c o s ts
– O n a g ra p h , p ro d u c e r s u rp lu s is th e a re a b e lo w
th e p ric e lin e a n d a b o ve th e s u p p ly c u rve .
M cG ra w -H ill/Irw in
© 2 0 0 2 T h e M cG ra w -H ill C o m pa n ies, In c., A ll R igh ts R eserv ed .
F ig u re 9 C o n s u m e r a n d
P ro d u c e r S u rp lu s o n a G ra p h
P
•
S u p p ly
A
V a lu e to th e C o n s u m e r:
•
•
C o n s u m e rs P a y P ro d u c e rs :
•
P*
C
•
•
D em and
0
Q*
P *A C
P ro d u c e r S u rp lu s :
•
M c G ra w -H ill/Irw in
OBCQ*
C o n s u m e r S u rp lu s :
•
Q /t •
O P *C Q *
T h e V a ria b le C o s t to P ro d u c e rs :
•
B
0AC Q *
B P *C
© 2 0 0 2 T h e M cG ra w -H ill C o m p an ies, In c., A ll R ig h ts R eserv ed .
Dead Weight Loss
Dead Weight Loss When the
Price is Above P*
P
Supply
A
P’
E
P*
C
F
B
Demand
0 Q’
Q*
Q/t
• Value to the Consumer:
• 0AEQ’
• Consumers Pay Producers:
• OP’EQ’
• The Variable Cost to Producers:
• OBFQ’
• Consumer Surplus:
• P’AC
• Producer Surplus:
• BP’EF
• DWL
• FEC
Dead Weight Loss When the
Price is Below P*
P
Supply
A
E
P*
C
P’
F
B
Demand
0
Q’
Q*
Q/t
• 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
ELASTICITY
Tax Incidence
&
Effects on Revenue and
Prices
TAX INCIDENCE AND
EFFICIENCY LOSS
Tax Revenues
Efficiency Loss of a Tax
Role of Elasticities
Qualifications
• Redistributive Goals
• Reducing Negative
Externalities
P
Perfectly Inelastic Demand
S2
P2
S1
P1
D
Q1=Q2
Q/t
P
Perfectly Elastic Demand
S2
S1
P1=P2
D
Q2
Q1
Q/t
P
Inelastic Demand
(at moderate prices)
S2
S1
P2
P1
D
Q2 Q1
Q/t
Elastic Demand
P
(at moderate prices)
S2
S1
P2
P1
D
Q2
Q1
Q/t
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.
Average Product, AP, and
marginal product, MP
Total Product, TP
SHORT-RUN PRODUCTION
RELATIONSHIPS
Law of Diminishing Returns
Total Product
Quantity of Labor
Quantity of Labor
Increasing
Marginal
Returns
Average
Product
Marginal
Product
Average Product, AP, and
marginal product, MP
Total Product, TP
SHORT-RUN PRODUCTION
RELATIONSHIPS
Law of Diminishing Returns
Total Product
Quantity of Labor
Quantity of Labor
Diminishing
Marginal
Returns
Average
Product
Marginal
Product
Average Product, AP, and
marginal product, MP
Total Product, TP
SHORT-RUN PRODUCTION
RELATIONSHIPS
Law of Diminishing Returns
Total Product
Quantity of Labor
Quantity of Labor
Negative
Marginal
Returns
Average
Product
Marginal
Product
Two Approaches to Find
the PROFIT MAXIMIZING
QUANTITY ( PRICE)
Total revenue and total cost
TOTAL REVENUE-TOTAL COST APPROACH
$1,800
1,700
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
800
700
600
500
400
300
200
100
0
Break-Even Point
(Normal Profit)
Total
Revenue
Maximum
Economic
Profits
$299
Total
Cost
Break-Even Point
(Normal Profit)
1 2 3 4 5 6 7 8 9 10 11 12 13 14
MARGINAL REVENUE-MARGINAL COST APPROACH
Profit Maximization Position
Cost and Revenue
$200
Economic Profit
MC
150
MR
ATC
AVC
$131.00
100
$97.78
50
0
1 2 3 4 5 6 7 8 9 10
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 < ATC
P > 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
MARGINAL REVENUE-MARGINAL COST APPROACH
Cost and Revenue, (dollars)
Marginal Cost & Short-Run Supply
MC
MR5
P5
ATC
MR4
P4
AVC
P3
P2
P1
MR3
MR2
MR1
Do not
Produce –
Below AVC
Q2 Q3 Q4
Q5
Quantity Supplied
MARGINAL REVENUE-MARGINAL COST APPROACH
Cost and Revenue, (dollars)
Marginal Cost & Short-Run Supply
P5
Yields the
Short-Run
Supply Curve
Supply
MC
MR5
P4
MR4
P3
MR3
MR2
MR1
P2
P1
No
Production
Below AVC
Q2 Q3 Q4
Q5
Quantity Supplied
Long Run Equilibrium
(Perfectly Competitive
Firm)
 Productive Efficiency
 Allocative Efficiency
LONG-RUN EQUILIBRIUM
FOR A COMPETITIVE FIRM
MC
Price
ATC
P
MR
Price = MC = Minimum ATC
(normal profit)
Q
Quantity
How an Increase in
Demand Changes LongRun Equilibrium for the
Firm and Industry
PROFIT MAXIMIZATION IN THE LONG-RUN
Temporary Profits and the Reestablishment
Of Long-Run Equilibrium
P
S1
P
MC
ATC
$60
50
40
MR
$60
50
40
D1
100
Firm
(price taker)
Q
100,000
Industry
Q
PROFIT MAXIMIZATION IN THE LONG-RUN
An increase in demand increases profits…
P
Economic
Profits
S1
P
MC
ATC
$60
50
40
MR
$60
50
40
D2
D1
100
Firm
(price taker)
Q
100,000
Industry
Q
PROFIT MAXIMIZATION IN THE LONG-RUN
New Competitors increase supply and lower
Prices decrease economic profits
P Zero Economic
Profits
S1
P
S2
MC
ATC
$60
50
40
MR
$60
50
40
D2
D1
100
Firm
(price taker)
Q
100,000
Industry
Q
How an Decrease in
Demand Changes LongRun Equilibrium for the
Firm and Industry
PROFIT MAXIMIZATION IN THE LONG-RUN
Decreases in demand, Losses and the
Reestablishment of Long-Run Equilibrium
P
S1
P
MC
ATC
$60
50
40
MR $60
50
40
D1
100
Firm
(price taker)
Q
100,000
Industry
Q
PROFIT MAXIMIZATION IN THE LONG-RUN
A decrease in demand creates losses…
P
Economic
Losses
S1
P
MC
ATC
$60
50
40
MR $60
50
40
D1
D2
100
Firm
(price taker)
Q
100,000
Industry
Q
PROFIT MAXIMIZATION IN THE LONG-RUN
Competitors with losses decrease supply and
prices return to zero economic profits S3
Return to Zero
P Economic Profits
S1
P
MC
ATC
$60
50
40
MR $60
50
40
D1
D2
100
Firm
(price taker)
Q
100,000
Industry
Q
Price and Marginal
Revenue for a Monopoly
MONOPOLY REVENUES & COSTS
Dollars
$200
150
200
50
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q
Dollars
$750
500
250
Q
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
MONOPOLY REVENUES & COSTS
Elastic
Dollars
$200
150
200
50
MR
D
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q
Dollars
$750
500
TR
250
Q
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
MONOPOLY REVENUES & COSTS
Elastic
Inelastic
Dollars
$200
150
200
50
MR
D
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
Q
Dollars
$750
500
TR
250
Q
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
OUTPUT AND PRICE DETERMINATION
Profit Maximization Under Monopoly
Remember
the
MR=MC
Rule?
200
Profit
Per Unit
Price, costs, and revenue
175
150
$122
125
$94
100
MC
Profit
ATC
D
75
50
MR = MC
25
0
1
2
3
4
MR
5
6
7
8
9
10
Q
And the Shading of
Economic Losses
LOSS MINIMIZATION OF
THE IMPERFECT
COMPETITOR
OUTPUT AND PRICE DETERMINATION
Loss Minimization Under Monopoly
200
Since Pm exceedsLoss
AVC,
Per Unit
the firm will produce
Price, costs, and revenue
175
MC
ATC
AVC
150
A
125 Loss
Pm
100
V
D
75
50
MR = MC
25
0
1
2
3
4
MR
5
Qm
6
7
8
9
10
Q
Monopoly
vs.
Competition
PURE
COMPETITION
MONOPOLY
MR = MC
MR = MC
The firms maximizes profit.
The firm maximizes profit.
P = ATC
P > ATC
The firms just BREAK-EVEN (NORMAL PROFITS) in
the Long Run.
P = min ATC
Long Run ECONOMIC PROFITS.
Firm is forced to operate with maximum productive
efficiency.
P > min ATC
-------------------------------------PRODUCTIVE EFFICIENCY
Firm is not forced to operate with maximum
productive efficiency.
PRODUCTIVE INEFFICIENCY
(Least-Cost Method Production)
(Least-Cost Method Production not necessary)
P = MC
P > MC
There is an optimal allocation of resources.
There is an UNDERALLOCATION of resources.
ALLOCATIVE EFFICIENCY
ALLOCATIVE INEFFICIENCY
P = MR
P > MR
The firm’s DEMAND CURVE is infinitely ELASTIC.
The firm’s DEMAND CURVE is less than infinitely
ELASTIC.
INEFFICIENCY OF PURE MONOPOLY
P An industry in pure competition S = MC
sells where supply and
demand are equal
At MR=MC
A monopolist
will sell less
units at a
higher price
than in
competition
Pm
Pc
D
MR
Qm
Qc
Q
INEFFICIENCY OF PURE MONOPOLY
P
S = MC
At MR=MC
A monopolist
will sell less
Pm Monopoly pricing effectively
units at a
higher
price
Pccreates an income transfer
from
than in
buyers to the seller!
competition
D
MR
Qm
Qc
Q
Not being able to GRAPH
a Natural Monopoly and
the
Socially- Optimal Output
and
Fair-Return Output
Levels
REGULATED MONOPOLY
Natural Monopolies
Rate Regulation
Socially Optimum Price
P = MC
Fair-Return Price
P = ATC
Dilemma of Regulation
Graphically…
REGULATED MONOPOLY
Monopoly Price
MR = MC
Price and Costs
P
Pm
ATC
MC
D
MR
Qm
Q
REGULATED MONOPOLY
Monopoly Price
MR = MC
Price and Costs
P
Pm
ATC
MC
D
MR
Qm
Q
REGULATED MONOPOLY
Price and Costs
P
Socially-Optimum
Price
P = MC
ATC
MC
Pr
D
MR
Qr
Q
REGULATED MONOPOLY
Price and Costs
P
Fair-Return Price
Normal Profit Only
ATC
MC
Pf
D
MR
Qf
Q
REGULATED MONOPOLY
Dilemma of Regulation
MR = MC Which Price?
Fair-Return Price
Price and Costs
P
Pm
Socially-Optimum
Price
ATC
MC
Pf
Pr
D
MR
Qm
Qf
Qr
Q
Single PRICE Monopoly
vs.
Price Discrimination
PRICE DISCRIMINATION
Conditions
Monopoly Power
Market Segregation
No Resale
Consequences
More Profit
More Production
Graphically…
PRICE DISCRIMINATION
Price and Costs
P
Economic profits with
a single MR=MC
price
MC
ATC
MR
Q1
D
Q
PRICE DISCRIMINATION
Price and Costs
P
A perfectly discriminating
monopolist has MR=D,
producing more product
and more profit!
MC
ATC
MR=D
D
Q1
Q2
Q
PRICE DISCRIMINATION
Economic profits with
price discrimination
Price and Costs
P
MC
ATC
MR=D
D
Q1
Q2
Q
Monopolistic
Competiton
What is it?
Monopoly?
Competition?
PRICE AND OUTPUT IN
MONOPOLISTIC COMPETITION
Expect New Competitors MC
Price and Costs
ATC
P1
A1
Economic
Profits
D
MR
Q1
Quantity
PRICE AND OUTPUT IN
MONOPOLISTIC COMPETITION
Expect New Competitors MC
Price and Costs
ATC
New competition drives down the
P
price
level – leading to economic
A
losses in the short run
1
1
Economic
Profits
D
MR
Q1
Quantity
PRICE AND OUTPUT IN
MONOPOLISTIC COMPETITION
MC
Price and Costs
ATC
A2
P2
Economic
Losses
D
MR
Q2
Quantity
PRICE AND OUTPUT IN
MONOPOLISTIC COMPETITION
MC
ATC
A2
P2
Price and Costs
With economic losses, firms will
exit the market – Stability occurs
Economic
when
economic profits are zero
Losses
D
MR
Q2
Quantity
Price and Costs
PRICE AND OUTPUT IN
MONOPOLISTIC COMPETITION
Long-Run Equilibrium MC
Normal
Profit
Only
ATC
P3
= A3
D
MR
Q3
Quantity
NOW,
for the
RESOURCE (Factor)
MARKETS
Remember…
Product Market:
MR = MC
Resource Market:
MRP = MFC
MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Units of Product
Resource (Output)
0
7
Resource price
(wage rate)
0
1
P
Marginal
product
(MP)
]
]
]
]
]
]
Product Total
Price Revenue
$2
2
7
$ 0
14
14
12
10
8
6
4
2
0
1
2
3
4
Marginal
Revenue
Product (MRP)
5
6
7
8
Q
Quantity of resource demanded
]
]
]
]
]
]
$ 14
MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Units of Product
Resource (Output)
0
7
13
Resource price
(wage rate)
0
1
2
P
Marginal
product
(MP)
]
]
]
]
]
]
Product Total
Price Revenue
$2
2
2
7
6
$ 0
14
26
14
12
10
8
6
4
2
0
1
2
3
4
Marginal
Revenue
Product (MRP)
5
6
7
8
Q
Quantity of resource demanded
]
]
]
]
]
]
$ 14
12
MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Units of Product
Resource (Output)
0
7
13
18
Resource price
(wage rate)
0
1
2
3
P
Marginal
product
(MP)
]
]
]
]
]
]
Product Total
Price Revenue
$2
2
2
2
7
6
5
$ 0
14
26
36
14
12
10
8
6
4
2
0
1
2
3
4
Marginal
Revenue
Product (MRP)
5
6
7
8
Q
Quantity of resource demanded
]
]
]
]
]
]
$ 14
12
10
MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Units of Product
Resource (Output)
0
7
13
18
22
25
27
28
Resource price
(wage rate)
0
1
2
3
4
5
6
7
P
Marginal
product
(MP)
]
]
]
]
]
]
Marginal
Revenue
Product (MRP)
Product Total
Price Revenue
$2
2
2
2
2
2
2
2
7
6
5
4
3
2
1
14
12
10
8
6
4
2
$ 0
14
26
36
44
50
54
56
]
]
]
]
]
]
$ 14
12
10
8
6
4
2
The purely competitive
seller’s demand for
a resource
0
1
2
3
4
5
6
7
8
Q
Quantity of resource demanded
MRP AS A DEMAND SCHEDULE
Pure Competition
Total
Units of Product
Resource (Output)
0
1
2
3
4
5
6
7
Marginal
product
(MP)
Product Total
Price Revenue
0
7
13
18
22
25
27
28
$2
$ 0
7
]
]
2
14
6
]
2
26 ]
5
]
2
36 ]
4
Now, consider
the2 case
44 ]
]
3
2
50 ]
]
2
of resource demand
under
2
54
1
]
]
2
56
Resource price
(wage rate)
Imperfect
Competition
14
P
12
10
8
6
4
2
Marginal
Revenue
Product (MRP)
$ 14
12
10
8
6
4
2
The purely competitive
seller’s demand for
a resource
0
1
2
3
4
5
6
7
8
Q
Quantity of resource demanded
MRP AS A DEMAND SCHEDULE
Imperfect Competition
Total
Units of Product
Resource (Output)
0
7
13
18
22
25
27
28
Resource price
(wage rate)
0
1
2
3
4
5
6
7
P
Marginal
product
(MP)
]
]
]
]
]
]
Product Total
Price Revenue
$2.80
2.60
2.40
2.20
2.00
1.85
1.75
1.65
7
6
5
4
3
2
1
Marginal
Revenue
Product (MRP)
14
12
10
8
6
4
2
$ 0
18.20
31.20
39.60
44.00
46.25
47.25
46.20
]
]
]
]
]
]
$ 18.20
13.00
8.40
4.40
2.25
1.00
-1.05
The imperfectly
Competitive seller’s
demand for a resource
0
1
2
3
4
5
6
7
8
Q
Quantity of resource demanded
LABOR MARKETS:
Wage Determination
PURELY COMPETITIVE
LABOR MARKET
Purely competitive labor market:
Many Firms
Numerous Qualified Workers
“Wage Taker” Behavior
Market Demand for Labor
Market Supply of Labor
LABOR SUPPLY AND DEMAND
PURELY COMPETITIVE MARKET
S
Wage Rate (dollars)
Includes
Normal
Profit
$10
Wc
D = MRP
( mrp’s)
Wc
NonLabor
Costs
S = MRC
($10)
Labor
Costs
d = mrp
(1000)
(5)
Quantity of Labor
Quantity of Labor
Labor Market
Individual Firm
MONOPSONISTIC
LABOR MARKET
Wage Rate (dollars)
S
In monopsony
MRC lies above
the supply curve
Quantity of Labor
MONOPSONISTIC
LABOR MARKET
Wage Rate (dollars)
MRC
S
MRP = MRC
Wm
MRP
Qm units of
labor hired
Qm
Quantity of Labor
MONOPSONISTIC
LABOR MARKET
Wage Rate (dollars)
MRC
S
The competitive
solution would
result in a higher
wage and greater
employment
Wc
Wm
MRP
Qm Qc
Quantity of Labor
EXTERNALITIES
Negative
Positive
COST-BENEFIT ANALYSIS
Marginal Cost = Marginal Benefit Rule
Externalities
Spillover Costs
Overallocation
Spillover Benefits
Underallocation
SPILLOVER COSTS AND BENEFITS
P
Illustrating
a Negative ExternalityS
t
Spillover
costs
S
Overallocation
0
Q0
Qe
D
Q
SPILLOVER COSTS AND BENEFITS
P
Illustrating
a Positive Externality
S
t
Spillover
Benefits
Dt
Underallocation
0
Qe
Q0
D
Q
Taxation Concepts
APPORTIONING THE
TAX BURDEN
Benefits-Received Principle
Ability-to-Pay Principle
• Progressive Tax
• Regressive Tax
• Proportional Tax
TAX APPLICATIONS:
Identify whether progressive,
regressive, or proportional
• Personal Income Tax
Progressive
• Sales Tax
Regressive
• Corporate Income Tax
Proportional - Regressive
• Payroll Taxes
Regressive
• Property Taxes
Regressive
Price Supports
Surpluses
Subsidies
EFFECT OF PRICE SUPPORTS
S
P
Price Support
Level
Surplus being
created by the
subsidies
Surplus
Ps
Pe
D
Qc Q e Q s
Q
International Trade
 Comparative Advantage
 Case for Free Trade
 Export Supply
 Import Demand
PRODUCTION POSSIBILITIES
Principle of Comparative Advantage
Total output will be greatest when
Each good is produced by the nation
that has the lowest domestic
opportunity cost for that good.
U.S has comparative advantage in
wheat
Brazil has comparative advantage
in coffee
PRODUCTION POSSIBILITIES
Principle of Comparative Advantage
Terms of Trade
Gains From Trade
Improved Options
Trading Possibilities Line
Graphically…
PRODUCTION POSSIBILITIES
Curve For Each Country
United States
Brazil
45
40
30
Coffee (tons)
Coffee (tons)
35
25
20
15
10
30
25
20
15
10
A
5
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
TRADING POSSIBILITIES LINES
The Gains from Trade
United States
Brazil
45
40
Trading
possibilities line
30
Coffee (tons)
Coffee (tons)
35
25
20
15
10
30
25
20
Trading
possibilities line
15
10
A
5
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
TRADING POSSIBILITIES LINES
The Gains from Trade
United States
Brazil
45
40
Trading
possibilities line
30
Coffee (tons)
Coffee (tons)
35
25
20
15
A’
10
30
25
20
Trading
possibilities line
15
10
A
5
B’
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
TRADING POSSIBILITIES LINES
The Gains from Trade
United States
Brazil
45
40
30
25
20
15
Trading
possibilities line
The Case For
Free Trade
Coffee (tons)
Coffee (tons)
35
A’
10
30
25
20
Trading
possibilities line
15
10
A
5
B’
5
B
0
0
5
10
15
20
Wheat (tons)
25
30
5
10
15
20
Wheat (tons)
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
$1.50
1.25
1.00
.75
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
1.25
1.00
If the world price
exceeds the U.S.
price by 25 cents...
.75
.50
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
$1.50
SURPLUS = 50
1.25
1.00
.75
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
1.25
EXPORTS = 50
1.00
.75
.50
If the world price
goes further up...
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
$1.50
1.00
.75
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
1.25
EXPORTS = 100
U.S.
export
supply
EXPORTS = 50
1.00
.75
.50
If world prices
fall below $1.00...
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
$1.50
1.00
.75
SHORTAGE = 50
.50
Dd
.25
50
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
1.25
EXPORTS = 100
U.S.
export
supply
EXPORTS = 50
1.00
.75
IMPORTS = 50
.50
.25
50
100
Quantity of Aluminum
U.S. EXPORT SUPPLY
AND IMPORT DEMAND
U.S. Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
$1.50
1.00
.75
SHORTAGE = 50
.50
SHORTAGE = 100
Dd
.25
50
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
U.S. Domestic
Aluminum Market
1.25
EXPORTS = 100
U.S.
export
supply
EXPORTS = 50
1.00
U.S.
import
demand
.75
IMPORTS = 50
.50
IMPORTS = 100
.25
50
100
Quantity of Aluminum
CANADIAN EXPORT SUPPLY
AND IMPORT DEMAND
Canada’s Export Supply
And Import Demand
Sd
$1.50
SURPLUS = 100
1.25
SURPLUS = 50
1.00
.75
.50
SHORTAGE = 50
.25
50
Dd
75 100 125 150
Quantity of Aluminum
Price (per pound; U.S. dollars)
Price (per pound; U.S. dollars)
Canada’s Domestic
Aluminum Market
Canadian
export
supply
$1.50
1.25
1.00
Canadian
import
demand
.75
.50
.25
50
100
Quantity of Aluminum
EQUILIBRIUM WORLD PRICE AND
QUANTITY OF EXPORTS & IMPORTS
Price (per pound; U.S. dollars)
U.S. export
supply
$1.50
Canadian
export
supply
1.25
1.00
.88
.75
Equilibrium
U.S. import
demand
.50
.25
Canadian import
demand
25 50
100
Quantity of Aluminum