Figure 7.1.Defending the Target Price in Face of Changing Demand Conditions -Consider Figure 7.1.Suppose the demand for tin decreases from D₀ to D₂.Under a system of export quotas,the tin producers could maintain the target price by: A) Increasing the quantity of tin supplied by 15 pounds B) Increasing the quantity of tin supplied by 30 pounds C) Decreasing the quantity of tin supplied by 15 pounds D) Decreasing the quantity of tin supplied by 30 pounds

Question

Quizplus · Accepted Answer

When the demand for tin decreases, the equilibrium quantity decreases from Q* to Q1. To maintain the target price, the producers need to decrease the quantity supplied from Q* to Q2. The difference between Q* and Q2 is equal to the decrease in demand, which is 30 pounds (Q* - Q1 = Q* - Q2 = 30 pounds). Therefore, the producers should decrease the quantity of tin supplied by 30 pounds (Choice D).

Figure 71Defending the Target Price in Face of Changing Demand Conditions