Ch 6 Market Interference

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Unformatted text preview: Subsidies • Hold inventories Price Floor Price S 6 Surplus Price Price 5 a b Price Floor 4 3 D 20 21 22 Quantity Quantity 23 A Quota Quota Quota S 6 5 Price a 4 3 b D 20 21 22 Quantity 23 A Subsidy Subsidy S 6 S less subsidy 5 Price 4 a 3 D 20 21 22 Quantity 23 How Inventories Limit Price Changes How Price (dollars per tonne) Q1 400 Q2 …to increase supply …to reduce supply to 20 million. to 20 million. Inventory Inventory Speculation Speculation When production increases…. 300 When production decreases... S 200 100 …take 5 million from inventory... D inventory... 0 5 10 15 20 Inventory …send 5 million to inventory... 25 Quantity (millions of tonnes) (millions...
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This document was uploaded on 03/13/2014.

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