Buffer Stocks

 

• If supply increase price falls below the equilibrium. TO maintain the target price the govt must buy the surplus Q2-Q1
• This will cost Q2-Q1 * TP
• If supply fell price would rise above the equilibrium therefore the govt could increase supply by using its buffer stocks

Advantages of govt intervention in Agriculture:

• 1. Stable prices help maintain farmers incomes
• 2. Stability enables investment in agriculture
• 3. Farming has positive externalities e.g. helps rural communities
• 4. Stable prices prevent excess prices for consumers
• 5. Food supplies are assured

Disadvantages of govt intervention in Agriculture

1. Cost of buying excess supply
2. Min prices and Buffer stocks encourage over supply
3. Govt subsidy to farmers may encourage inefficiency amongst farmers
4. Some goods cannot be stored in buffer stocks
5. Govts may have poor information e.g. what price to set
6. Admin costs
7. Min prices may cause problems for other farmers

See also: Common Agricultural Policy

 

Essays and Revision Notes on Supply and Demand

• Demand
• Supply
• Market Equilibrium
• Price Mechanism Long Term
• Demand and Utility
• Consumer and Producer Surplus

Elasticity

• Price Elasticity of Demand
• Income Elasticity of Demand
• Cross Elasticity of Demand
• Price Elasticity of Supply