buffer stocks

• What is the purpose of buffer stocks?

  To stabilize prices during disequilibrium
• When does the government buy buffer stocks?

  When there is a surplus of products
• What action does the government take during a shortage?

  It sells stocks to increase market supply
• How do buffer stocks help in resource allocation?

  They maintain equilibrium in the market
• How can buffer stocks be represented graphically?

  • Supply and demand graph
  • Market equilibrium point
  • Shifts in supply curve
• What happens when the supply curve shifts and prices rise?

  The government sets a minimum price
• What does the government do after setting a minimum price?

  It supplies more stock to stabilize prices
• What occurs when there is a surplus of products?

  The government sets a maximum price
• What is one advantage of buffer stocks for farmers?

  They are financially protected from bad harvests
• How do stable prices benefit consumers?

  They prevent rioting and ensure welfare
• What is a disadvantage of implementing buffer stocks?

  It requires significant capital investment
• What risk do maximum prices pose for farmers?

  They may overproduce to cover costs
• What are the advantages and disadvantages of buffer stocks?

  Advantages:

  • Financial protection for farmers
  • Stable prices reduce illegal crop growth
  • Improved consumer welfare

  
  

  Disadvantages:

  • High capital requirement
  • Risk of overproduction by farmers