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.

a. Assuming is initially GH¢31.00 per bag, Y is GH¢1001.50

i. Find the resulting demand function for cowpea and determine the number of bags Zuku can sell at

GH¢ 45.00 per bag. 4 marks

ii. Management is considering increasing price of cowpea by GH¢10.00 per bag. Advise management

on this price change using the concept of price elasticity of demand. 2 marks

iii. Explain why management should be worried about a reduction in the price of groundnut.

2 marks

Assume also that your estimated supply function for cowpea as follows:

Where is the quantity supplied of cowpea in bags, and are as defined above, is the price of

fertilizer per bag, is the amount of rainfall (in inches).

If inches and = GH¢31.00.

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

4 marks

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.

6 marks

d. Sketch the demand curve and the supply curves for cowpea. 2 marks

[20 Marks]