Question

Question 1b The economy of Ghana is made up of three sectors namely: Agriculture, Industry and Services. These three sectors contribute to the national output. For decades prior to the 2000s, the Agricultural sector contributed the most to the national output. Sadly, in recent years however, the sector has been the least contributor to national output. Trends in production of major food crops such as maize, rice and sorghum show that on-farm productivity has stagnated and the exploitable difference between the actual and the potential output of most of the crops (yield gap) has widened. Low and inadequate levels of usage of productivity enhancing technologies such as quality seeds of improved varieties and fertilizer, inadequate extension services and weak market linkages contribute to the poor agricultural performance. It was against this background that the NPP-led government implemented one of her flagship programmes “Planting for Food and Jobs”. The programme is primarily aimed at making subsidised improved seeds and fertilizers available to farmers, sensitising farmers on the adoption of good agronomic practices and the marketing of agricultural crops over an electronic agriculture platform. This programme is ultimately aimed at boosting crop yield. In addition, suppose that agricultural products in Ghana are normal goods and due to the implementation of good economic policies and the curtailing of corruption, the economy of Ghana grows significantly leading to appreciable increases in the general consumers’ income levels. With the aid of a diagram, explain the effect of these events on the equilibrium price and quantity of agricultural crops assuming that these events have equal impact.     

Answer 1

Following are the main events that have impacted the market for agricultural crops in Ghana:

• An increase in crop yield, due to various government programmes
• An increase in the consumers' income levels

Further, both these events are assumed to have equal impact. The effects on the market are:

• The first event will shift the supply curve to the right. This is because supply as a whole has increased, due to higher productivity.
• The second event will shift the demand curve to the right. This is because income levels of consumers have increased.

Net effect: Price will remain constant, quantity will rise significantly.

---

Both these events are factors other than price, that determine demand and supply. The resulting graph looks like below:

Due to the two events, S and D curves will shift rightwards, to S" and D" respectively. Q will increase to Q". P will remain constant. This is because S and D have shifted by the same magnitude.