Question

Question 4:

Read the following news story excerpt. Use demand and supply diagrams (that you create) and explanations to communicate the impact of Cyclone Yasi on banana prices.

1. On Diagram 4a (below), label each axis and the demand and supply curves and use arrows to describe the market for bananas before and after the cyclone including the equilibrium price and quantity before and after the storm.
2. Assume that oranges are a partial substitute for bananas. Hypothesise about the effects of the rise in the price of bananas on the demand for oranges. On Diagram 4b (below), draw a demand and supply curve for oranges to support your answer.

Cyclone Yasi to see banana prices stay high till midwinter

Australian Business Review – April 4th, 2011 [modified]

Shoppers can expect to pay top dollar for bananas until late July at the earliest, with prices skyrocketing to $15/kg two months after Cyclone Yasi destroyed much of the nation's crop.

Category-5 Yasi tore through north Queensland in early February, wiping out 75 per cent of Australia's banana production. Prices have shot up in the past 10 days, after the last of the pre-cyclone and storm-damaged fruit sold out.

Now supermarkets and fruit shops around the country are relying on bananas from northern NSW and the Atherton Tableland in north Queensland, which was unscathed by Yasi.

Sydney Market Reporting Service fruit surveyor Chris Cope said the flood of bananas to urban markets had become a trickle since Yasi struck.

"On New Year's Eve, we broke our record for quantities coming on to the Sydney market with 245,000 cartons of bananas in one week," Mr Cope said. "For the last couple of weeks, we've had 30,000 to 35,000 cartons a week."

"We've gone from very cheap prices before the cyclone -- $16 per carton (13kg) for bananas, now at $150 per carton (13kg)."

Diagram for 4a: Diagram for 4b:

Answer 1

A-4) (as leftwards 1 m to no mantot to Since the cyclone destroyed the anana crop, the supply market in the for bananas decreased inte? and the supply curve shifted equilibrium at point where prices of bananas has increased to f OP and Quantity of bananas has o decreased to Od. b) Increase in the price of bananas will lead to increase in the Quantity demanded of bananas apples which is a substitute of bananas. Thus at new equilibrium point & equilibrium price and Quantity of apples has increased