Question

A particular metal is traded in a highly competitive world market at a world price of $9 per ounce. Unlimited quantities are available for import into the United States at this price. The supply of this metal from domestic U.S. mines and mills can be represented by the equation Q s Which of the following statements is correct?

a) The domestic supply of the metal will decrease if the world price increases.

b) The domestic supply of the metal will increase if the world price decreases.

c) The domestic supply curve is perfectly elastic at the world price.

d) The domestic supply curve is perfectly inelastic at the world price.

Answer 1

The domestic supply of the metal will increase if the world price decreases.

Step-by-step explanation:

In this scenario, the domestic supply of the metal will increase if the world price decreases.

When the world price decreases, importing the metal becomes less expensive, making it more profitable for domestic U.S. mines and mills to supply a higher quantity of the metal to the market.

This is because at a lower world price, domestic producers can still earn a profit by selling the metal in the domestic market.