The diagram shows the demand curve for an agricultural commodity that has unitary elasticity. ${S_1}$ is the supply curve if there is a bad harvest and ${S_2}$ is the supply curve if there is a good harvest.
What should the government do in order to stabilise the incomes of farmers?
allow the price of the commodity to be determined by the market
2 )
fix the price paid to farmers at price OP
3 )
introduce a quota on production equal to OQ
4 )
subsidise farmers in bad years and impose a tax on farmers in good years
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