price support

Price support is the artificial maintenance of prices at a predetermined level, typically through government action. This intervention aims to stabilize prices, especially for raw materials or agricultural products, which can fluctuate widely due to factors like climate, political events, and business cycles.123

In a free market, prices naturally adjust to balance supply and demand. When supply exceeds demand, prices fall, signaling producers to make less. Conversely, when demand outstrips supply, prices rise, encouraging more production. Price supports interfere with this natural mechanism. Efforts to stabilize commodity prices have historically included international cooperation through cartels and agreements, as well as national marketing boards and stabilization funds. However, national schemes can be hampered by inconsistent policies and high operating costs.423