Buffer Stocks

Buffer Stock Schemes

Learning Objectives

• Know how to illustrate and explain a buffer stock scheme

• Understand why buffer stock schemes are put in place and the problems associated with them

Buffer Stocks

1 weetabix = 1 bushel of wheat

Consumers will always demand 4 bushels of wheat

Buffer Stocks

A Buffer Stock Scheme is where:

An organisation (often the government) attempts to smooth out fluctuations in prices by the purchase and sale of stocks

Price of wheat

Quantity of wheat

S

D

Minimum Price

Maximum Price

S1

D1

P

Q

P1

Q1

P2

Q2

Buffer Stocks

There are two main reasons for intervening in a market:

1.) Protect producers from prices falling too low

2.) Protect consumers from prices rising too high

Buffer Stocks

In the long run a buffer stock scheme should aim to balance its stocks

This means that the amount of wheat purchased in order to raise prices is later all sold in order to

lower prices

Buffer Stocks

Buffer stocks worksheet

Buffer Stocks

If the supply of wheat has fallen due to a bad harvest, what will happen to its price?

A: IncreaseB: FallC: Stay the same

Buffer Stocks

If the government operates a buffer stock scheme and the price of wheat has risen above the maximum price, what will they do?

A: NothingB: Buy up wheatC: Release wheat onto the market

Buffer Stocks

If there has been a bumper harvest this year, what is likely to happen to the price of wheat?

A: IncreaseB: FallC: Stay the same

Buffer Stocks

If the government operates a buffer stock scheme and the price of wheat has fallen below the minimum price, what will they do?

A: NothingB: Buy up wheatC: Release wheat onto the market

Buffer Stocks

Bees past paper question