The World Market for Newly Smelted Primary Aluminum (I

question 67

Multiple Choice

The world market for newly smelted primary aluminum (i.e., excluding scrap or recycled sources) recently experienced a period of rising inventories and falling prices. The Wall Street Journal reported that Russian smelter Rusal, the world’s largest aluminum producer, expected primary aluminum ingot prices would need to fall even further before worldwide inventory accumulation could stabilize. Suppose the demand for primary aluminum can be represented by the equation Qd = 124 − 0.025P (Qd is the monthly worldwide quantity demanded in millions of metric tons of new aluminum, P is the dollar price of new aluminum per ton) . Further suppose the world supply of aluminum is Qs = –50 + 0.025P (Qs is the monthly worldwide quantity supplied in millions of metric tons of new aluminum; P is the dollar price of new alu¬minum per ton) . On the axes provided below, sketch the world demand and supply curves for primary aluminum to help you answer the next three questions

-Rusal believed the price of aluminum would fall because of the growing accumula?tion of inventories worldwide.Evaluate Rusal's prediction by using the demand and supply equations to make a prediction about the movement of world aluminum price,i.e.,explain why you think price will either rise or fall.

• A)Price is likely to fall from $4,200 to $3,480 per ton in order to reach market equilibrium.
• B)Price is likely to fall from $4,200 to $3,000 per ton in order to reach market equilibrium.
• C)Price is likely to fall from $4,200 to $3,000 per ton in order to eliminate the existing surplus of aluminum.
• D)Price is likely to fall from $4,200 to $3,000 per ton in order to eliminate the existing shortage of aluminum.

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