Question

Explain the concept of "buffer stock" as a tool for price floor.

Answer 1

A buffer stock is a stock which is stored for the times when there will be a shortage in the economy. and when later this product is sold from the storage a price floor is set so that the commodity can be sold at lowest legal price. Price floor is used by the government to prevent prices from being too low.

Answer 2

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$\textsf{\pink{Q.}}$ Explain the concept of "buffer stock" as a tool for price floor.

$\textsf{\pink{Ans.}}$ Buffer stock is an important tool in the hands of government to ensure price floor. If in case, the market price is lower than what the government feels should be given to the farmers / producers, it would purchase the commodity at a higher price from farmers / producers so as to maintain stock of the commodity with itself, to be released in case of shortage of the commodity in future.

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