Banana Economics Assignment Essay

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The article ¡§Pain at checkout as WA bananas go east¡¨ by Regina Titelius and Jennifer Eliot states that in the wake of cyclone Larry¡¦s unforgiving wrath on Queensland, banana prices have soared throughout the nation over the last month and are expected to rise even more following WA¡¦s wholesaler Mercer Mooney declared that Carnarvon bananas would be shipped east. Following cyclone Larry¡¦s destruction on Queensland, it has wiped out about 80 per cent of Australia¡¦s bananas destroying fruit worth $300 million, thus leaving Australia to possibly face a 3 year shortage as Queensland¡¦s banana industry slowly recovers from the damages. However, to really see the full impact of the cyclone on banana prices and the effect on society¡¦s …show more content…

Figure 3 shows that a decrease in supply would cause the decrease in quantity of bananas (Q0 „_ Q1) to outweigh the increase in price of bananas (P0 „_ P1). Figure 3 Shift of elastic supply curve (Source: Gans et al, 2005 figure 5.9 pg 98) Following the wake of Larry destroying all the banana crops in Queensland and hence causing the supply curve to shift leftwards, a decrease in supply not only affects price and quantity, but it also affects consumer and producer surpluses and the total surplus of the economy. Consumer surplus measures the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it where consumer surplus is the area below the demand curve and above the market price (Gans et al, 2005, p.127). Figure 4a and 4b illustrates the before and after changes in consumer surplus as a result of the cyclone in Queensland. Figure 4a Consumer surplus before cyclone Figure 4b Consumer surplus after cyclone (Source: Gans et al, 2005 figure 7.3 pg 131) (Source: Gans et al, 2005 figure 7.3 pg 131) Figure 4b shows that as a result of a decrease in banana suppliers in the market, the supply curve shifts upwards causing the equilibrium price and equilibrium quantity of bananas to decrease. Figure 4b also depicts that at a higher

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