Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions

-Consider Figure 7.1.Suppose the demand for tin increases from D? to D?.Under a buffer stock system,the buffer-stock manager could maintain the target price by:
A) Selling 15 pounds of tin
B) Selling 30 pounds of tin
C) Buying 15 pounds of tin
D) Buying 30 pounds of tin

Question

Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions
 
-Consider Figure 7.1.Suppose the demand for tin increases from D? to D?.Under a buffer stock system,the buffer-stock manager could maintain the target price by:
A) Selling 15 pounds of tin 
B) Selling 30 pounds of tin 
C) Buying 15 pounds of tin 
D) Buying 30 pounds of tin

Quizplus · Accepted Answer

When the demand for tin increases from D? to D?, the equilibrium price also increases. To maintain the target price, the buffer-stock manager needs to reduce the supply by selling tin from the buffer stock. Since the increase in demand is equivalent to a shift of the demand curve by 15 units, the buffer-stock manager needs to sell an additional 15 units of tin from the buffer stock to maintain the target price. Therefore, the best choice is option B, which suggests selling 30 pounds of tin.

Figure 71 Defending the Target Price in Face of Changing Demand