Dynamics of maize price in Ghana: Linear versus nonlinear cobweb models

Abstract

This paper intends to study the price dynamics of maize in Ghana using cobweb models derived from linear demand and nonlinear supply function and then compare with that from linear demand and supply functions which are constructed from real economic price and production data of maize. Comparative analysis of stability conditions of the equilibrium was discussed. The results from the linear cobweb model provided unstable equilibrium state of prices towards the zero equilibrium price as well as the supply. Thus the system is unstable and no equilibrium price is achieved towards the equilibrium point 0 which is also not realistic because of producers’ sensitivity to price. However, the nonlinear cobweb model provided two equilibria of which one is also stable at the zero equilibrium price and the other unstable at non-zero equilibrium price which is realistic and a reflection of maize price system due to inflation and insufficiency of food supply at the markets in Ghana. It is deduced that linear model though provides an acceptable estimate of most problems researchers come across but in real economic situations, there is the need to use nonlinear approach as it is shown in this study to avoid under or overestimation and make better predictions