Th4.3: IS - Buffer Stock Schemes

Question 1

What are buffer stock schemes?

Answer 1

when the government imposes both a maximum and minimum price for goods, buying up stocks for when there is excess supply and selling them off when there is excess demand

Question 2

As a result, buffer stock schemes should be…

Answer 2

self-financing - money is raised when selling their products, allowing the government to buy the next lot of stocks

Question 3

What it is used on?

Answer 3

commodities, where the prices are volatile, and can either be set up by a group of countries or within a country

Question 4

When it works efficiently, why is it beneficial?

Answer 4

it stabilises prices and thus encourages investment since producers can plan for the long term, as well as preventing sharp falls/rises in prices, preventing producers from absolute poverty and being affordable for consumers - can also solve issues regarding primary product dependency

Question 5

However, what does it require?

Answer 5

requires stocks to go up and down - if they keep rising then the scheme will run out of money and if they keep falling the scheme will run out of stocks

Question 6

What do they require costs wise?

Answer 6

huge start-up costs, as well as administration costs and problems of shortage

Question 7

Why might some countries not want to introduce buffer stock schemes?

Answer 7

other countries may benefit from the schemes, since it keeps global prices fairly stable when undertaken by a group of countries - free riders

Question 8

What is the biggest potential problem within buffer stock schemes?

Answer 8

minimum prices may be set too high, encouraging producers to become inefficient - they will produce as much as they like, knowing it will sell anyway, meaning supply is high and the government has to continually buy up the stocks

Question 9

If the scheme is operating at a loss…

Answer 9

the taxpayer feels the burden and the government finances are worsened