Using the Data and Your Economic Knowledge, Evaluate Different Ways in Which the Government of a Country Which Imports Large Quantities of Wheat Can Try to Stabilise Wheat Prices Within the Country.

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Using the data and your economic knowledge, evaluate different ways in which the government of a country which imports large quantities of wheat can try to stabilise wheat prices within the country. (25 marks)

Price stability is when prices in the economy don’t change or don’t change much over time. This means that an economy would not experience inflation or deflation. One of the ways in which the government could stabilise wheat princes is through a buffer stock intervention. This is an intervention system that aims to limit the fluctuations of the price of a commodity. Another way in which they could stabilise the price of wheat could be through imposing a price ceiling. A price ceiling is the price level in which the price of a good or service is not allowed to increase past.
Wheat is unstable predominantly due to the situation regarding it in Russia. This is because Russia, a major wheat explorer, banned exports of wheat in 2010. This was due to very dry weather and fires destroying a third of the Russian crop. Due to this wheat prices significantly increased in the summer of 2010. Furthermore the wheat market is unstable due to the emerging demand from developing countries such as India and China, thus having a domino effect on other countries. Due to this it has made the Russia situation more than it should have been. Although to combat this farmers have already planted more wheat, began to use less wheat to feed livestock and substituted cheaper grains in their place. Through this the market has reacted to the subtraction of the Russian wheat crop and in reaction has increased supply which stabilises the price of wheat. Yet this is only a short term solution as there could be other weather events in the coming years which will interrupt this equilibrium. This is where government intervention is needed to reassure and reaffirm the price of wheat for years…...

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