How can supply and demand analysis be used to explain the equilibrium price and quantity of exports and imports for aluminum when there is trade between two nations (e.g., the United States and Canada)?

Question

What will be an ideal response?

Answer 1

For the United States, there will be domestic supply and demand and export supply and import demand for aluminum. The price and quantity of aluminum are determined by the intersection of the domestic demand and supply curves in a world without trade. In a world with trade, the export supply curve for the United States shows the amount of aluminum that American producers will export at each world price above the domestic equilibrium price. American exports will increase when the world price rises relative to the domestic price. The import demand curve for the United States shows the amount of aluminum that Americans will import at each world price below the domestic equilibrium price. American imports will increase when world prices fall relative to the domestic price.
For Canada, there will be domestic supply and demand and export supply and import demand for aluminum. The description of these supply and demand curves is similar for those of the United States. The price and quantity of aluminum are determined by the intersection of the domestic demand and supply curves in a world without trade. In a world with trade, the export supply curve for Canada shows the amount of aluminum that the Canadian producers will export at each world price above the domestic equilibrium price. Canadian exports will increase when the world price rises relative to the domestic price. The import demand curve for Canada shows the amount of aluminum that Canadians will import at each world price below the domestic equilibrium price. Canadian imports will increase when world prices fall relative to the domestic price.
The equilibrium world price and equilibrium world levels of exports and imports of aluminum can be determined with further supply and demand analysis. The export supply curves of the United States and Canada can be plotted on one graph. The import demand curves of both nations can be plotted on the same graph. In this two-nation model, equilibrium will be achieved when the United States’ import demand curve for aluminum intersects the Canadian export supply curve.