3.1.1 The Theoretical Model
According to the micro-economic theory of supply, the major determinant of supply is the commodity’s own price. Changes in the determinants of supply either result in movement along or a shift in the supply curve and the major shifters of supply are input prices, expected product prices, expected prices of substitutes, expected prices of joint products, advances in technology, entrants of new firms in the market, environmental conditions such as weather and institutional factors such as production quotas and government intervention. In conjunction with this, the Cobweb and the Nerlove (1958) theories stated that current output supplied is a function of expected market prices, lagged output supplied and other exogenous supply shifters. Therefore, being guided by these theories, the theoretical model can be presented as follows Total tobacco output = f (real price of tobacco, expected tobacco price, expected price of competing crops, lagged tobacco output, institutional factors, state of technology, population of tobacco growers) …………………………………………………………………………....(3.1)
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