Faculty of social studies department of economics supply response of tobacco output to price changes in

Total tobacco output (lnTOUT
t-1
)
Total tobacco output in million tonnes, lagged by one period. The inclusion of this variable is justified in the Cobweb theorem by Kaldor (1934) which states that, if more output is supplied in the current period, then current producer prices are likely to fall due to acting market forces and in realising this fall in prices farmers are likely to reduce production and supply low quantities in
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the next successive season. Therefore an inverse relationship between lagged tobacco output and current tobacco output is expected.
Lagged real tobacco price (lnPT
t-1
)
The price refers to the annual average price of tobacco output expressed in United States dollar terms per each kilogram sold. The producer price of tobacco, lagged by one period has been introduced as a proxy for expected prices and this is justified by the assumption that tobacco producers take past price experiences into account when making production plans. According to
Askari and Cummings (1977), the choice of a deflator is of great importance hence nominal tobacco price was deflated using the ratio of nominal tobacco price to nominal maize price. A positive relationship is expected between lagged real tobacco prices and current supply of tobacco output as also found by Leaver (2004).
Population of active tobacco growers (lnATG
t
)
The total number of actively registered tobacco growers that have produced and supplied tobacco leaf to the market. According to the micro-economic theory of supply, quantity supplied fora product increase when new firms supplying the same product enter the market. Entrants of new firms in the market result in an increase in quantity supplied thereby resulting in a rightward shift of the market supply curve. Hence, it is expected that an increase in the number of registered tobacco growers should increase the quantity supplied for tobacco. Dean (1966) also used the variable as one of the factors influencing agricultural output and found it positively related to tobacco supply.

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