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The Common Agricultural Policy is a system of subsidies and programmes to encourage and control the supply of agricultural products within the EU.

It works by guaranteeing farmers a given price for their agricutltural products and therefore removes any uncertainty around and instability around crop prices. It would work in the same way as a buffer stcok scheme should work. The EU would buy goods from EU farmers at the high price if their was oversupply in the market. The amount they would buy wold be equal to (Qs-Qd). This price was often far higher than the market price so that it could supplement farmer's incomes during uncertain times. However it did incentivise farmers to over-produce to receive a higher income from the EU government and therefore was very inefficient. The process of the CAP is shown below in the diagram.

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