Buffer stock reserves maintained by authorities to stabilize commodity price swings?
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Answer: B. Buffer stocks
Explanation
Buffer stocks are commodity reserves maintained by authorities to stabilize cyclical price swings in markets. Governments or international bodies buy excess supply during surplus periods and release stock during shortages. This intervention flattens out extreme price volatility for agricultural or mineral goods. Commodity prices are often volatile due to inelastic demand and unpredictable supply shocks. Buffer stock schemes attempt to maintain prices within a predetermined target band. Managing these reserves requires significant financial backing and accurate forecasting.
International agreements on coffee, cocoa, and rubber have historically utilized buffer stocks. While conceptually appealing, these schemes often fail due to high storage costs. Miscalculating future market trends can bankrupt the authorities managing the reserves. Option A refers to illicit underground markets operating outside legal frameworks. Option C denotes physical capital equipment used in production processes. Option D involves betting on future price movements rather than holding physical stabilization reserves.
- Subject
- Agriculture
- Category
- Agriculture
- Topic
- —
- Difficulty
- medium
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