You are the Economic Consultant for Zuku Farms Ghana Limited. Zuku produces cowpea in a community where producers are able to switch back and forth between cowpea and groundnut depending on market conditions. Consequently, you were tasked by the management of Zuku and you estimated the demand function for cowpea as follows: where is the quantity of cowpea demanded in bags per month, is the average price of cowpea in Ghana Cedis, is the average price of groundnut in Ghana Cedis, and Y is the income of consumers. Assuming is initially GH¢31.00 per bag, Y is GH¢1001.50. Also that your estimated supply function for cowpea is as follows: QS = -25 + 3.5PC -1.5Pf – 0.5Pg + 0.25R
Where Qs is the quantity supplied of cowpea in bags, Pc and Pg are as defined above, Pf is the price of fertilizer per bag, R is the amount of rainfall (in inches).
If Pf = GH¢10, R= 40 inches and Pg= GH¢31.00
- Find the resulting supply function for cowpea and determine the
equilibrium price and quantity. - Assuming the government imposes a tax of GH¢10 on every bag of cowpea sold, determine the new equilibrium price and quantity. Explain the effect of the policy on the market.
- Sketch the demand and supply
curves for cowpea.
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