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    Hello,

    I can't seem to understand what the heck a buffer stock is,
    can you tell me the use of it, what is it, what situation i would use it in, try and revolve it around an exam question so i can picture it easier,

    appreciate it so much D
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    (Original post by mistel)
    Hello,

    I can't seem to understand what the heck a buffer stock is,
    can you tell me the use of it, what is it, what situation i would use it in, try and revolve it around an exam question so i can picture it easier,

    appreciate it so much D
    examination board?
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    I'm doing AQA Economics and this is what we learn about Buffer Stocks:

    They are an intervention method to stop the price volatility of goods.

    They are worked in play primarily for goods that are grown and harvested through agriculture. Typically, the produce varies. Some years, there may be a good harvest due to ideal weather conditions, but during others, there may be poorer harvests (if weather was extremely poor for example)

    During years of a good harvest, supply shifts to the right ... an increase in supply. The equilibrium makes the price fall.

    During years of bad harvests, supply shifts to the left ... a decrease in supply. The equilibrium makes the price rise.

    Hence, there is price volatility.

    To stop this, the government can buy the extra stock (surpluses) during good harvests, and sell these during bad harvests, to maintain the supply curve at one point and hence achieve price stability.

    Hope this helps!
    Check out tutor2u too on the web, they'll have decent notes
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    It's pretty simple if you can easily understand a demand and supply diagram. Buffer stock schemes aim to reduce price fluctuations

    Suppose there's a good called good A. In one year, the supply of good A has risen due to improved weather conditions etc. What happens when supply increases? It shifts outwards, causing a fall in equilibrium price. Basic stuff. However, producers may not want prices to decrease by a large amount because they want higher profits. Hence, the government must ensure that prices should not decrease by too much when supply rises.

    Now, since prices have fallen due to increased supply, what can cause them to rise back up again? One way would be to cancel out the increase in supply. If the supply curve shifts back inwards, prices will increase to producers benefit and problem solved. But the government or producers don't want to destroy the supply as it would be a waste. Instead, the government will just buy the excess supply. This would shift the supply curve inwards (as supply is being taken away from the market) and prices will go back up.

    Then, suppose in one year, the supply of good A has fallen. When supply falls, an inwards shift occurs which raises price levels. Now, the price may be so high that no one is purchasing from the producers. Now it would be in the interest of producers if price falls. What can cause the price to come back down? One way it could come back down is an increase in supply but producers can not instantly increase supply of agricultural good. Hence, the stock of GOOD A that the government bought earlier can be released onto the market. This would reduce the shortage, and bring prices down.
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    What are the negative things about a buffet stock scheme?
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    (Original post by mistel)
    What are the negative things about a buffet stock scheme?
    Well, if the government is buying goods in the agriculture industry then they have a very limited time they can actually stock the goods, as they are perishable.

    There is also the fact that there is an opportunity cost in using buffer stocks and storing the goods also costs a lot of money.
 
 
 
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