Question

Q-4: Consider the banana market in Jizan again. It has the following aggregate Supply and aggregate Demand curves: Aggregate Supply Aggregate Demand Barnes Price (s) ༡ ས ཀར Supled Price (s) Demanded 6.00 242 219 196 173 6.00 5.75 5.50 5.25 5.00 4.75 5.75 5.50 5.25 5.00 4.75 4.50 4.25 4.00 112 131 150 127 104 81 4.50 4.25 400 150 169 188 207 226 68 3- What is the equilibrium Price and equilibrium Quantity? b- Suppose that new lands are made available for banana growers, what will happen to: the Supply curve? the Demand curve? Equilibrium Price? Equilibrium Quantity? o Suppose that new regulations require farmers to allocate more land for growing other produce, what will happen to: the Supply curve? the Demand curve? Equilibrium Price? Equilibrium Quantity?

Answer 1

4.a) At $5.00, the quantity of banana supplied is equal to quantity of banana demanded i.e, 150kg

So the equilibrium price is $5.00 and equilibrium quantity is 150kg

b) If new lands are made available for Banana growers

• the supply curve will shift to the right.
• the demand curve will remain the same.
• the equilibrium price will decrease.
• the equilibrium quantity will rise.

c) If new regulations require farmers to allocate more land for growing other produce, there will be shortage of land for Banana.

• The supply curve will shift to the left
• the demand curve remains the same
• equilibrium price will rise
• equilibrium quantity will decrease

d) If village elders require every citizen to pa $50 per year for improving village road, citizen will consume less quantity of Banana i.e, the demand for Banana decreases.

• the supply curve remains the same
• the demand curve shifts to the left
• equilibrium price rises
• equilibrium quantity decreases

e) At any price, quantity demanded increases by 10kg and quantity supplied drops by 10%.

Aggregate Supply Aggregate Demand Quantity of Quantity of New New Price ($) Bananas Price (S) Bananas Supply Demanded Demand Supplied (kg) (ka) 74 217.8 197.1 176.4 155.7 84 6.00 242 6.00 103 5.75 219 5.75 93 122 5.50 196 5.50 112 141 5.25 173 5.25 131 135 160 5.00 150 5.00 150 114.3 179 4.75 127 4.75 169 93.6 198 4.50 104 4.50 188 72.9 217 4.25 81 4.25 207 52.2 236 4.00 58 4.00 226

At no point quantity demanded is equal to quantity supplied. So the market is not in equilibrium.