A stabilisation fund can be used to stabilise prices (Figure 2.23). In this case, the agency should buy whatever comes onto the market at a stabilized price OP₀. If a smaller output OQ-, comes onto the market, the agency buys at a price of OP₀ instead of OP-,. With a greater output OQ₂, the agency buys at OP₀ instead of a lower price, OP₂.

Figure 2.23 Stabilization fund with price stabilization.

A given amount of the crop has been planted, it is comparatively difficult to increase or decrease the output. High prices are likely to persist in the short run before the supply can be adjusted to demand. In the long-run, the price will tend to be low since the amount of the commodity would have increased (Figure 2.25).