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Market Intervention

In: Business and Management

Submitted By Zakiya7
Words 1523
Pages 7
A market is on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely based on a mutual agreement on price without state intervention. However, when prices are too high, low or start to fluctuate, governments take the view that markets are best suited to allocating scarce resources and allow the forces of supply and demand to set prices. A market will naturally settle into equilibrium: the equilibrium price ensures that all sellers who are willing to sell at that price and all buyers who are willing to buy at that price will get what they want. At equilibrium, supply is exactly equal to demand. However, in some cases, the government will interfere with the market, putting in minimum and maximum Prices. If the equilibrium price is the price that is stable under existing conditions, which must mean other prices will tend to be unstable. Consider what happens when the market price is below the equilibrium price. At low prices, producers supply less and consumers want to buy more than at the equilibrium price. This creates an excess demand, and causes a shortage of the product. Now consider what happens when the market price is above the equilibrium level. In this case there is an excess supply, or surplus, of the product. At high prices, producers are willing to produce more of the product, but consumers are willing to buy less than at the equilibrium price. On the other hand, when prices started to fluctuate partially in agricultural that could happen over a short period of time; these are sometimes signals to the producers what could be confusing at time. So government intervenes to change prices, to minimum and maximum prices and buffer stock scheme for the unstable fluctuation.

A. Why the prices of agricultural products tend to

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