Market Intervention

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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…show more content…
But, However, a problem may arise; maximum prices is likely to be emergence of ‘black market’, which is when the governments price and quantity is not being obey by and is getting sold illegally equates prices.

Buffer Stock Scheme is a government plan to stabilise prices in unstable markets. Prices for agricultural products are often unstable because, supply can vary due to the weather, demand is inelastic, or supply is fixed in the short term. So the Buffer Stock aims to than stabilise prices and ensure supplies. In theory buffer stock schemes should be profit making, since they buy up stocks of the product when the price is low and sell them onto the market when the price is high. However, they do not often work well in practice. The success of a buffer stock scheme however ultimately depends on the ability of those managing a scheme to correctly estimate the average price of the product over a period of time. This estimate is the scheme’s target price and obviously determines the maximum and minimum price boundaries.

The reasons why governments intervene in international trade are usually to correct market failures or lies. The main reason for government policy intervention is; correction of market failure, achieve reasonable supply of income and wealth and improve performance of the economy. Fluctuation in the harvest, determination
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