Describe buffer stock for 5 marks
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Buffer stock is an attempt to use commodity storage for the purpose of stabilising prices in an entire economy or an individual market.
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A buffer stock scheme is a government plan to stabilise prices in volatile markets. This requires intervention in buying and selling.
Prices for agricultural products are often volatile because:
Supply can vary due to the weather.
Demand is inelastic
Supply is fixed in the short term
See: Why are prices of agricultural goods volatile?
Buffer stock schemes aim to:
Stabilise prices
Ensure the supply of food
Prevent farmers/producers going out of business because of a drop in prices.
Diagram of Buffer Stock Scheme
buffer-stock-increase-supply
If there is a very good harvest and supply increases to S2, the market price would fall to P2.
This price is below the target price (TP)
To maintain the price at TP, the government will need to buy the surplus stocks (Q2-Q1) and store the goods.
Prices for agricultural products are often volatile because:
Supply can vary due to the weather.
Demand is inelastic
Supply is fixed in the short term
See: Why are prices of agricultural goods volatile?
Buffer stock schemes aim to:
Stabilise prices
Ensure the supply of food
Prevent farmers/producers going out of business because of a drop in prices.
Diagram of Buffer Stock Scheme
buffer-stock-increase-supply
If there is a very good harvest and supply increases to S2, the market price would fall to P2.
This price is below the target price (TP)
To maintain the price at TP, the government will need to buy the surplus stocks (Q2-Q1) and store the goods.
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