Most studies on the plant khat (catha ed uli s) -the mild stimulant cash crop- focus onrndescription of the social behavior, health imp lications and psycho logical effects onrnconsumers. Due to this most policy actions taken in this regard are one sided since theyrnneglect the economic contribution of khat. The present study tried to describe therneconomic role of khat in Ethiopia. Graphs and tables are used fo r this purpose. Resu ltsrnindicate that khat is clearly an important cash crop i.e. as a so urce of fore ign exchange,rnso urce of tax revenue to the government and creating employment opportunity both to thernfanners and urban dwellers. Thus, it is recommended that policy makers should take intornconsideration the economic role of khat to understand the impact of alternative policyrnpackages and/or extern al shocks that may have an effect on income/employment ofrnindividual khat producers and on the whole economy.rnThe study also assesses the supply elastici ty of khat with respect to its own price and pricernof food crops (teff, wheat & maize) and coffee, so as to examine its relationship with foodrncrops and coffee. Besides labor and fe rtili zer, non- price factors such as land and animalrnpower are also included as explanatory variab les. The methodology applied, whi ch isrnfirmly rooted in neo-class ical theory, deals with the est imation of profit (dual of thernproduction jimction), supply and input demand funct ions; the parameters are mainly basedrnon cross-farm var iation. A cross-section seco nd ary data from the 5th round of thernEthiopian Rural household Survey held in 1999 is used to present empirical estimates.