Use of Buffer Stock as a Means of Stabilising Prices

It was designed to even out price fluctuations for producers and to maintain production. An intervention price is set, which is a minimum fixed price. Minimum prices are usually set to help producers increase their incomes. The government may decide that the free market price for wheat is too low a price for farmers to receive and therefore set a minimum price. (fig. 1)This will result in an increase in supply of wheat because farmers can receive higher prices for it. This increase in price then leads to a decrease in demand so there will be an excess supply. Because of this excess, the government has to intervene in the mar

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