Which scheme involves government intervention to stabilize prices by managing surplus and shortages?

The buffer stock scheme is a government intervention that involves the buying and selling of a commodity to stabilize its market price. This is particularly useful in markets where prices can be highly volatile due to fluctuating supply and demand conditions. In a buffer stock scheme, the government or a designated authority purchases and stores surplus goods when supply exceeds demand, preventing prices from falling too low. Conversely, when there is a shortage and prices start to rise, the government can release some of the stored goods into the market to increase supply and stabilize prices.

This approach particularly benefits farmers and producers by ensuring that they receive stable income levels and do not suffer from drastic price fluctuations, which can occur in agricultural markets, for instance. The aim is to create a safety net that helps maintain price levels, making it a proactive measure to manage market responses to surplus and shortage scenarios effectively.

Other choices, such as price control schemes, generally set maximum or minimum prices without necessarily involving management of surplus through physical stock; supply chain intervention focuses more on the logistics and processes in getting goods to market rather than directly managing prices; and regulatory price schemes may set guidelines but do not specifically involve the active buying and selling of surplus stock to stabilize prices.