The diagram below illustrates the international tin market.Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2.Defending the Target Price in Face of Changing Supply Conditions

-Consider Figure 7.2.Suppose the supply of tin increases from S0 to S1.Under a buffer stock system,the buffer-stock manager could maintain the target price by:

Question

The diagram below illustrates the international tin market.Assume that the producing and consuming countries establish an international commodity agreement under which the target price of tin is $5 per pound.
Figure 7.2.Defending the Target Price in Face of Changing Supply Conditions
 
-Consider Figure 7.2.Suppose the supply of tin increases from S0 to S1.Under a buffer stock system,the buffer-stock manager could maintain the target price by:

Quizplus · Accepted Answer

When the supply of tin increases from S0 to S1, the equilibrium price of tin decreases from P0 to P1. In order to maintain the target price of $5 per pound, the buffer-stock manager needs to purchase tin from the market. The amount of tin that needs to be purchased is the difference between the quantity demanded at the target price (Qd1) and the quantity supplied at the new equilibrium price (Qs1). This is shown as the horizontal distance between points A and B in the diagram. The buffer-stock manager needs to purchase 30 pounds of tin (Qd1-Qs1 = 30-0 = 30). Therefore, the correct answer is B.

The Diagram Below Illustrates the International Tin Market