Question

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 − 0.025 P (Qd is the annual 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 + 0.025 P(Qs is the annual worldwide quantity supplied in millions of metric tons of new aluminum, P is the dollar price of new aluminum per ton).
a. At the time of Rusal’s concern, primary aluminum prices were relatively high at $3,600 per ton. At this price, calculate the monthly rate of inventory growth in the global aluminum market using the given demand and supply equations for the world aluminum market.
b. Rusal believed the price of aluminum would fall because of the growing accumulation of inventories worldwide. Evaluate Rusal’s prediction by using the demand and supply equations provided to make a prediction about the movement of world aluminum price.



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  • CreatedNovember 18, 2014
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