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Most buffer stock schemes work along the same rough lines: first, two prices are determined, a floor and a ceiling (minimum and maximum price). When the price drops close to the floor price (after a new rich vein of silver is found, for example), the scheme operator (usually government) will start buying up the stock, ensuring that the price ...
English: A diagram illustrating a simple buffer stock scheme. With no intervention, prices fluctuate between P1 and P2. To institute a ceiling (maximum price) and floor (minimum price), the government or other party buys when the price is low, making up demand, stores the commodity, and sells when the price is high.
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English: An example of a buffer stock scheme, in the scenario where a large organisation (such as government or group of companies) have set a minimum price for a certain product above equilibrium (point at which the supply and demand curves cross), which guarantees a minimum price to producers - encouraging them to produce more, thus creating the surplus.
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