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 price falls from $4.02 to $3.27, which is below the minimum price set by the International Tin Agreement. To maintain the price within the set range, the buffer-stock manager needs to buy tin from the market, which would shift the demand curve to the right. The buffer stock manager needs to buy enough tin to shift the demand curve to the point where the equilibrium price is within the set price range. From the graph, it can be seen that buying 20,000 pounds of tin would be sufficient to shift the demand curve to the right, resulting in the equilibrium price of $3.45, which is within the agreed price range. Therefore, the best choice is B) buy 20,000 pounds of tin.