- 20 Marks
EIB – APR 2024 – L1 – Q2 – Demand and Supply of Cocoa
Calculates cocoa equilibrium with given functions, assesses coffee price impact, diagrams shifts, explains supply relationship.
Question
Cocoa and Coffee are common cash crops in Ghana. The knowledge of their Demand and Supply is crucial for national development. Assume the Demand and Supply functions of Cocoa are given as $Q^d=12-p$ and $Q^s=9.6+0.5 p-0.2 p_c$ respectively. Where $Q^d$ is Quantity Demanded and $Q^s$ is Quantity Supplied of Cocoa, $p$ is the Price of Cocoa and $p_c$ is the Price of Coffee. (a) Determine the Equilibrium Price and Quantity of Cocoa if $p_c=\mathrm{GHC} 3.00$. [6 marks]
(b) Determine the new Equilibrium Price and Quantity of Cocoa if the price of Coffee increases from its original price of $p_c=\mathrm{GHC} 3.00$ to $\mathrm{GHC} 6.00$. [6 marks]
(c) Represent the solutions in $a$ and $b$ above with a diagram. [6 marks]
(d) Explain whether Cocoa and Coffee have Joint, Composite or Competitive Supply.[2 marks]
(Total: 20 marks)
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