Figure 9-2

-Refer to Figure 9-2.What happens to the demand and supply in the Chinese market of pencil sharpeners at the world price
A)The domestic quantity demanded is greater than the domestic quantity supplied.
B)The domestic quantity demanded is less than the domestic quantity supplied.
C)China should raise the domestic demand.
D)China should raise the domestic supply.

Question

Figure 9-2
 
-Refer to Figure 9-2.What happens to the demand and supply in the Chinese market of pencil sharpeners at the world price
A)The domestic quantity demanded is greater than the domestic quantity supplied. 
B)The domestic quantity demanded is less than the domestic quantity supplied. 
C)China should raise the domestic demand. 
D)China should raise the domestic supply.

Quizplus · Accepted Answer

At the world price, the quantity demanded by Chinese consumers is lower than the quantity supplied by Chinese producers. Therefore, there is excess supply or a surplus in the Chinese market. To restore equilibrium, the domestic quantity supplied must decrease or the domestic quantity demanded must increase. Since China cannot influence the world price, the best choice is for China to reduce its domestic supply of pencil sharpeners to match the lower domestic demand. This will bring the market to equilibrium and eliminate the surplus. Therefore, the best choice is option B.

Figure 9-2 -Refer to Figure 9-2.What Happens to the Demand and Supply