Question

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:

Q_{d = 1,000 - 9.5Pc + 16.2Pg + 0.2Y,}
                               
Assume also that your estimated supply function for cowpea as follows:

Q_{s = -25 + 3.5Pc - 1.5Pf - 0.5Pg + 0.25R}

Where Q_s is the quantity supplied of cowpea in bags, P_c and P_g are as defined above, P_f is the price of fertilizer per bag, R is the amount of rainfall (in inches).
If P_f = GH¢10, R = 40 inches and P_g = GH¢31.00.

b. Find the resulting supply function for cowpea and determine the equilibrium price and quantity.                

c. 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.                  

d. Sketch the demand curve and the supply curves for cowpea.      

    

Answer 1

Page 1000 915P+ 160 2Pg 3.2 P t 0.2 ya 1001.50 Po 2 Q 1880 qub ( 459 + 16,2 ( 31 ) +0.201001150), d Q12 10 Con- Price elasticity dad. Pe dee Id (-9,5 45 0:32 1275 161 in elastic demanda There will be direct relationship between Total revenue of le Po reduces to 10 total revenue decrease. Price shouldn't be reduced cross-price elasticity :- dod Pg - (+) 0.394 16.2 x 31 1275 dla Od (yo) ground nut is substitute Cross - price elasticity you Cowpea and und goods A decrease in the decrease in Id of Cowpea. will lead to