Explain the concept of 'buffer stock' as a tool of price floor
OR
Market for a product is in equilibrium. Supply of the product 'decreases'. Explain the chain of effect of this change till the market again reaches equilibrium. Use diagram.

Explanation

Buffer stock is an important tool in the hands of govemment to ensure price floor. If in case, the market price is lower than what the govemment feels should be given to the farmers/producers, it would purchase that commodity at higher price from the farmer/producers so as to maintain stock of the commodity with itself, to be released in case of shortage of the commodity in future.
OR
When the supply decreases, demand remaining unchanged, the supply curve shifts to the left from SS to `S_(1)S_(1)`.
`**` When supply decreases to `S_(1)S_(1)`, it creates an excess demand at the old equilibrium price of OP.
`**` This leads to competition among buyers, which raises the price.
`**` Increase in price leads to rise in supply and fall in demand.
`**` These changes continue till the new equilibrium is established at point `E_(1)`.
`**` Equilibrium price rises from `OP " to " OP_(1)` and equilibrium quantity falls from `OQ " to " OQ_(1)`