If a global recession reduces tin demand by 4 million pounds at every price point, what action is required to maintain the target tin price ?
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Answer: C. buy 4 million pounds of tin
Explanation
A drop in global demand creates a market surplus at the current price. Stabilizing authorities must absorb excess supply by purchasing surplus commodities directly. Buying four million pounds removes the excess inventory to sustain target prices. Buffer stock schemes aim to stabilize volatile commodity prices around a target. Governments or international bodies buy surpluses and sell accumulated reserves as needed. Market equilibrium requires quantity demanded to equal quantity supplied always.
International commodity agreements utilize these inventory mechanisms for price defense. Agricultural price support programs often rely on government purchases of surpluses. Managing buffer stocks requires substantial financial resources and careful forecasting. Selling tin would increase the surplus and drive market prices down further. Selling eight million pounds would exacerbate the downward pressure on prices. Buying eight million pounds exceeds the required surplus absorption quantity.
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