Figure 7.5 Global Market for Tin

-Figure 7.5 represents the global market for tin.The initial equilibrium price and quantity is at point A.As a result of an International Tin Agreement, a price range of $3.27-$4.02 is set.As the supply of tin increases from S₀ to S₁, the buffer-stock manager will need to

Question

Figure 7.5 Global Market for Tin

-Figure 7.5 represents the global market for tin.The initial equilibrium price and quantity is at point A.As a result of an International Tin Agreement, a price range of $3.27-$4.02 is set.As the supply of tin increases from S₀ to S₁, the buffer-stock manager will need to

Quizplus · Accepted Answer

As the supply of tin increases from S₀ to S₁, the equilibrium quantity increases from 27,000 to 29,000 pounds of tin. This means that there is an excess supply of 2,000 pounds of tin in the market. The buffer-stock manager will need to buy this excess supply in order to maintain the price within the agreed range of $3.27-$4.02. Therefore, the buffer-stock manager will need to buy 20,000 pounds of tin (the excess supply of 2,000 pounds plus the initial equilibrium quantity of 27,000 pounds).