Reference no: EM133330849

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 aluminum per ton). On the axes provided below, sketch the world demand and supply curves for primary aluminum to help you answer the question. 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 to make a prediction about the movement of world aluminum price, i.e., explain why you think price will.