19.3 Supply and Demand Analysis of Exports and Imports

What determines the equilibrium domestic price in a closed economy?

The intersection of domestic supply (Sd) and domestic demand (Dd).

What was the U.S. equilibrium domestic price and quantity for aluminum in a closed economy?

$1 per pound and 100 million pounds.

What happens if the world price is above $1 in the U.S.?

Domestic producers make more, consumers buy less → surplus → exports.

At a world price of $1.25, how much does the U.S. produce, consume, and export?

Produce 125 million lbs, consume 75 million lbs, export 50 million lbs.

At a world price of $1.50, how much does the U.S. produce, consume, and export?

Produce 150 million lbs, consume 50 million lbs, export 100 million lbs.

What does the U.S. export supply curve show?

The positive relationship between world price and U.S. exports.

What happens if the world price is below $1 in the U.S.?

Domestic producers make less, consumers buy more → shortage → imports.

At a world price of $0.75, how much does the U.S. produce, consume, and import?

Produce 75 million lbs, consume 125 million lbs, import 50 million lbs.

At a world price of $0.50, how much does the U.S. produce, consume, and import?

Produce 50 million lbs, consume 150 million lbs, import 100 million lbs.

What does the U.S. import demand curve show?

The inverse relationship between world price and U.S. imports.

What is Canada’s domestic equilibrium price for aluminum in a closed economy?

$0.75 per pound.

What happens in Canada at a world price of $0.75?

No exports or imports; supply and demand balance domestically.

What happens in Canada when the world price is above $0.75?

Producers make more than consumers buy → surplus → exports.

At a world price of $1, how much aluminum does Canada export?

50 million pounds.

At a world price of $1.25, how much aluminum does Canada export?

100 million pounds.

What does the Canadian export supply curve show?

The positive relationship between world price and Canadian exports.

What happens in Canada when the world price is below $0.75?

Producers make less than consumers want → shortage → imports.

At a world price of $0.50, how much aluminum does Canada import?

50 million pounds.

What does the Canadian import demand curve show?

The inverse relationship between world price and Canadian imports.

How is the equilibrium world price determined in a two‑nation model?

By the intersection of one nation’s export supply curve and the other’s import demand curve.

What is the equilibrium world price of aluminum between the U.S. and Canada?

$0.88 per pound.

At $0.88, how much aluminum does Canada export and the U.S. import?

25 million pounds.

Who pays more for aluminum with trade, and who pays less?

Canada pays more ($0.88 vs $0.75); the U.S. pays less ($0.88 vs $1).

Why does Canada willingly export aluminum to the U.S.?

To earn U.S. dollars that finance imports of goods more valuable to Canadians than aluminum.

World price > domestic price

• producers make more than consumers want → surplus → exports.

World price < domestic price

• consumers want more than producers make → shortage → imports.

Domestic price

• This is the price that balances supply and demand inside one country if it were closed to trade.

World price

• Once trade is allowed, aluminum flows across borders. The world price is the single price that balances global supply and demand — meaning one country’s exports equal another country’s imports.

Export supply curve

Slopes upward

Import demand curve

Slopes downward

World price is found….

Where one country’s export supply equals the other country’s import demand.

Trade only works….

If one country’s exports equal another country’s imports.

If the domestic price of corn is $1.00 and the world price of corn is $.75, then a Blank______ will occur and the United States will Blank______ corn

shortage; import

The intersection of one nation's import demand curve and another nation's export supply curve represents

international equilibrium

What is the equilibrium world price?

The price that equates the quantities supplied and demanded globally through international trade

The equilibrium domestic price is the price that would prevail in ______

A closed economy that does not participate in international trade
The domestic price equates quantity supplied and quantity demanded domestically.

The equilibrium world price is the price that equates _____

The quantities supplied and demanded globally through international trade.

The interaction of world supply and demand determines the ___

equilibrium world price

The interaction of domestic supply and demand determines the ____

equilibrium domestic price

Assume the domestic price of corn is $1.00 and the quantity of corn produced is 100 tons. What will happen if the world price of corn exceeds $1.00?

U.S. firms will produce more than 100 tons of corn and export the excess, selling it at the world price.

An upward sloping United States export supply curve indicates that ____

As world prices increase relative to domestic prices, U.S. exports rise

When the world price for a product is below the Canadian price, what will Canada experience?

• A domestic shortage

• More imports

The interaction of world supply and demand determines the equilibrium ___

World Price

The interaction of domestic supply and demand determines the equilibrium _____

Domestic price

An upward slope of the U.S. export supply curve indicates that the relationship between the world price and the amount of U.S. exports is

• positive

• direct