Government purchases supply to stabilize price at $3 and clear market Steps: - Note at$3/kg, demand (160k tonnes) exceeds supply (140k tonnes), creating a 20k-tonne shortage; natural equilibrium price is higher. - Identify need for intervention to force balance at $3 without price rising. - Evaluate options: tax shifts supply left (worsens shortage); subsidy shifts supply right but insufficiently; buying and reselling at lower price boosts demand; full purchase absorbs supply. - Conclude purchasing entire supply at$3 ensures producers sell all output at that price, equilibrating supply side via government as buyer. Why D is correct: - By acting as the buyer for all supply at $3, government creates equilibrium where quantity supplied equals quantity demanded by government (140k tonnes), per market-clearing definition under intervention. Why the others are wrong: - A. Indirect tax of$2/kg shifts supply curve left, reducing supply further and raising equilibrium price above $3. - B. Buying at$3 and selling at $2 lowers consumer price, shifting demand right and increasing shortage beyond 20k tonnes. - C.$2/kg subsidy shifts supply right to …