Question:
Suppose a government intends to increase the income of paddy farmers without raising the price of rice to consumers. The most appropriate policy to achieve the government’s objective would be
(1) a release of government rice stocks onto the market.
(2) setting a guaranteed price above the market price of rice.
(3) introducing a minimum price below the market price of rice.
(4) introducing a maximum price below the market price of rice.
(5) a payment of a subsidy to paddy farmers.
Correct Answer:
(5)
Answer Explanation:
Subsidizing farmers directly lowers their production costs, shifting supply to the right. This increases the total quantity traded, lowers the market price for consumers, and increases the total revenue/income for the producers. Price floors/guarantees would force consumer prices up.
Topic: Agricultural Economics Year: 2024
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