Th1.4: Buffer Stock Scheme

Question 1

What is a buffer stock scheme?

Answer 1

where both maximum and minimum prices are implemented at the same time

Question 2

What kind of products are buffer stock schemes usually imposed on and why?

Answer 2

agricultural goods as their prices fluctuate massively

Question 3

What will the government do when the equilibrium price is below the minimum price?

Answer 3

buy up the excess supply

Question 4

When would governments sell their stock?

Answer 4

to meet the excess demand when price exceeds the maximum price

Question 5

How do buffer stock schemes help?

Answer 5

prevent price fluctuation

provides stability

Question 6

How do buffer stock schemes not help?

Answer 6

causes inefficiency

places a large cost on the government

Question 7

Why do prices remain below the minimum price?

Answer 7

farmers produce as much as they can as they know the government will buy whatever they produce at the minimum price