Government can increase farmers' incomes by__________

Analyze the question: It asks which government action raises farmers' incomes. This is about price controls in agricultural markets.

Concept:

• Maximum price (price ceiling): Set below the equilibrium price to protect consumers. It lowers what producers receive, which reduces farmers' incomes and can cause shortages.
• Minimum price (price floor): Set above the equilibrium price to protect producers. Farmers sell at a guaranteed higher price. The government usually buys any surplus, so farmers' incomes rise. Nigeria has used guaranteed minimum prices for crops such as grains.

Evaluate each option:

• A. Fixing maximum prices: This pushes prices down, so farmers earn less. Wrong.
• B. Fixing minimum prices: This guarantees a higher price and raises revenue per unit sold. Correct.
• C. Encouraging surplus output: Without a buyer or a guaranteed price, surplus output pushes market prices down, and farmers may earn less. It is also not a direct government income policy. Wrong.
• D. Increasing taxes on inputs: This raises production costs and reduces farmers' net income. Wrong.

Answer: Option B, fixing minimum prices.

Exam tip: Remember "Floor protects Farmers, Ceiling protects Consumers." A minimum price (floor) helps producers, and a maximum price (ceiling) helps buyers.