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
- Cost of buying excess supply
- Min prices and Buffer stocks encourage over supply
- Govt subsidy to farmers may encourage inefficiency amongst farmers
- Some goods cannot be stored in buffer stocks
- Govts may have poor information e.g. what price to set
- Admin costs
- 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
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