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- 2. Buffer Stocks -



One step a government might take in order to stabilize agricultural prices is to use the technique of buffer stocks. The very basic idea of this is letting the government set a minimum price on agricultural goods. This price will usually be above the price where demand meets supply, so the government must buy the excess quantity produced, in order to stabilize prices. This quantity will then be stored till, for example, next year where there is a bad harvest, and then it will be put on the market. In case of famine, or earthquake the goods can also be given to the people.



In pracise, using fig. 1, the market price would be at OP. This price is obviously so low, that the farmers will receive too little profit, hence the government agrees to a minimum price at OG. Here there is an excess supply, OQ to OQ1, which the government then buys, so they stabilize the prices.



- 3. Monopoly -



It is easy to mention the obvious disadvantages which might occur to the consumer of a monopoly (eg. higher prices, lower quality etc), but there are also several ways a consumer might benefit from the existence of a monopoly. Basically there are two options. A monopoly controlled by the government, and monopoly controlled by the private sector.



Monopoly under government, is properly where the consumer will find the greatest advantages. The government will try to minimize prices for the consumer, and if necessary, cover the loss of doing so. Quality wise, the consumer will most likely benefit from this type of monopoly. If we take the dutch PTT, which is not completely a monopoly, but still very dominating, over the telecommunication in the Netherlands. The quality of the goods they sell (phones, answering machines etc.) is very good. They all have to go through certain tests, and get the 'blue seal'.


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