Question

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- a) Suppose an untimely gust of wind has harmed the production of banana that will affect its market supply negatively. Draw a figure (properly labeling the axes) showing the supply of and demand for banana and provide a brief explanation about what will happen to price of banana and why? b) Suppose the demand function for banana is Qs = 11 - 1.15P and supply function Qs = 3 + 0.85P. Compute the price elasticity of demand for banana. Round your answer to four decimal points.

Answer 1

Date Ans. as Price YA-- - Quantity with an a untimelu u aust of wind the market sunblu o barianas been allected heatively. This has Shifted the sunblod ewhre lestwards from s to Isisi. Initial equilibrium was at hoint f but now the equilibrium is altained at point to where the equilibrium prices have increased from e to Pl and equilibrium quantity has decreased from a to di criven do = 11-1.158 ? ds = 3+0.85P Equating de with a I J 1-1.15 P = 3t 0.85P - 1 * = 4 Q = 11-1.151 11-111564) 3 scanned with

Date Price plasticity of Demand P 0o = 11-1.15 this in ① Now pulting - 1.15 x P* -1.15 X 4 6:4 -0.71875 FS Scanned with = -Eanstanser