Summary
Summary Instability and Intervention
- Course
- Institution
Providing a concise overview of the essential parts of the topic
[Show more]
Seller
Follow
HumanitiesHelper
Content preview
Why are some markets unstable? Maximum Prices Diagram Exchange Rates Buffer Stock SchemeUnstable Market: Where prices are volatile and supply
and/or demand is unpredictable
Example of Agricultural Markets:
Aim to stabilise prices
Supply inelastic as supply unresponsive to
changes in price due to growth/rearing cycle Set a ceiling + floor price
Demand inelastic as food stuffs necessities
around equilibrium price
which generally take up small proportion of
income
Intervene by managing supply
Supply unpredictable as depends on weather, on + demand at ceiling + floor
good harvest is downward pressure on price, price
bad one sees prices rise
Demand unpredictable as many agricultural
products traded as commodities so demand
dependent on speculation
Farmers income likely to be volatile + change
over time, demand likely to be income elastic so
farmer’s incomes likely to fall behind over
sectors as demand increases by a smaller
proportion than income
What are the pros and cons of Minimum price Minimum Prices Diagram Market success and Failure
schemes? (farmers example) What are the five main factors which, in principle, the Free Market should deliver:
Pros: Competition (low costs (efficient) to make profit while charging competitive
prices)
Higher rural living standards Choice (consumer ‘sovereignty’ – firms respond to needs/wants as that is
Farmers able to invest what they are willing to pay for. And flexibility (firms respond to incentives)
Prices stabilised giving greater Efficient allocation of resources (allocative efficiency – maximising
certainty over future consumer + producer surplus. CS + PS = social welfare maximised)
Food supply should be guaranteed
But:
Cons:
Government intervention
Some produce will be wasted Information issues
Prices will rise for consumers Instability in the market
Taxes will rise as government needs 3rd party costs/benefits, e.g. pollution
money to acquire surplus Inequality
Overproduction will worsen Absence of property rights
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller HumanitiesHelper. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.09. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
53022 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now