welcome back everyone Professor Federman here we continue our discussion of trade now we're going to think about trading between countries thinking about demand curves and Supply curves to determine how the world price is determined for good let's start with the U.S market for aluminum without any Trading here we see a demand curve in the supply curve at one dollar we're at equilibrium the United States would produce a hundred million pounds at a dollar 25 if that were the price the United States would have Supply well exceeding demand there would be a surplus of 50 million pounds if the price were only 75 cents then there would be a shortage demand would be up at 125 and Supply would only be 75. we'd have a shortage now let's keep the United States um mark it in mind as we continue so here we see the U.S domestic market for aluminum now we see another uh chart it's a label us export Supply and import demand let me show you how we created this chart we got rid of the left hand side of the domestic Market all we're looking at is the supply curve above the dollar equilibrium or the demand curve below well if the price is above a dollar we're going to have excess Supply now look at the right we're going to look to export along our supply curve if the price is below a dollar we're going to have extra demand so on the right we're going to look to import along our demand curve so the chart on the right is simply the chart on the left but with the left hand side of the chart gone all we see is everything to the right of equilibrium point if the world price was a dollar the US would look to export 50 million pounds along its supply curve if the price was 75 the us would have a shortage they look to import that shortage of 50 million pounds along its demand curve now let's look at Canada's Market free for aluminum domestically they would be at equilibrium at 75 cents they can make aluminum cheaper in the real world in fact Canada has lower price for electricity and electricity is an important raw material for making aluminum so the Canadian Market would be balanced at 75 cents at a dollar 25 there would be a there would be a huge Surplus Supply would be way up at a price of 50 cents there would be a shortage we'd have a surplus of 100 million pounds up at a buck 25 but down to 50 cents we'd have a shortage of 50. doing the same analysis getting rid of the left-hand side of the chart to the right of equilibrium above 75 cents Canadians are going to look to export below 75 cents Canadians will look to import to meet the demand now we put the two pieces together to arrive at a world equilibrium price if local marketers have shortages or Surplus they trade with the world to balance so we're going to look at imports and exports balancing we have prices on the y-axis and quantity on the X here we see the equilibrium point of 75 cents from Canada Canadians would look to export along their supply curve above 75 cents they would look to import if the price was below 75 cents along their demand curve now we add up the United States export north of a dollar they look to export below a dollar they would look to import so the Canadians north of 75 cents want to export below a dollar the United States wants to import and we're going to end up with an equilibrium point the equilibrium point is going to occur where World Imports equal World exports we arrive at a world equilibrium point the equilibrium price becomes the world price go back to the previous graphs and see what happens to the United States if the price was 88 look what happens for the Canadians if the price is 88 cents all right that wraps up our discussion of international trade thinking about supply and demand to arrive at a world equilibrium price we have one more video left talking about trade barriers tariffs and quotas this is Professor fetterman see you there