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

-Consider Figure 7.1.Suppose the demand for tin decreases from D? to D?.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

Figure 7.1. Defending the Target Price in Face of Changing Demand Conditions
 
-Consider Figure 7.1.Suppose the demand for tin decreases from D? to D?.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

Quizplus · Accepted Answer

When the demand decreases from D1 to D2, in order to maintain the target price, the quantity supplied needs to decrease. The amount of decrease in quantity supplied depends on the elasticity of supply. The steeper the supply curve, the more the decrease in quantity supplied. In this case, the supply curve is relatively steep, so a decrease in quantity supplied by 30 pounds is required to maintain the target price. Therefore, the correct choice is D.

Figure 71 Defending the Target Price in Face of Changing Demand