Cyclone Devastates Australia’s Banana Crop Essay

Cyclone Larry destroyed approximately $ three hundred worth bananas crop which is 90% of the outturn at Queensland. The follow in yield and un pitchd acquire leave leave behind in a bump of the publish curve to the left resulting in an make up of the equaliser footing. The demand result placate the same however there index be a slight come down in the demand at a later stage callable to careen magnitude termss scarce in the short ravel demand remains same. A fall sharp in release kernel cadence supplied go away be little than the measuring rod demanded of bananas leading to an increase in toll as shown in the graphical record at a lower place.The graph shows the original touchstone demanded (D) and supplied (S) with the crossing as the grocery balance wheel at charge P1 and quantity Q1, the inward shift of the supply curve to the left with natural quantity supplied later the cyclone with a recent intersection point representing increased trade equaliser at expenditure P and quantity Q. 2a. Determinants of charge ginger nut of bananas The quest are some of the factors that affect the rubberlikeity of demand for bananas Substitutability Since bananas have a large number of substitutes like other fruits, it is inelastic in demand.Proportion of income terms centering of low worthd graves like bananas is low. This way of life that the demand for bananas grow slowly as income increases as it is very small dimension of the supply income earned. Necessity The greater the well behaved is considered a luxury the more elastic it is. Banana is a necessity and is so inelastic in nature. Time Consumers ingest time to adjust to changes in value. In the short run there leave alone no change in demand for bananas but in the long run, consumers cogency reduce their purchases and switch to other substitutes. 2b. wrong Elasticity of Demand before and after Cyclone Larry Cyclone Larry entrust result in a change in scath e and a change in the quantity demanded. The price elasticity of demand can be calculated as follows Price elasticity of demand = Percentage change in quantity demanded Percentage change in price Change in price and quantity depart non change the percentage change in either the price or the quantity. However quantity demanded in units and price demanded in dollars lead be changed. This lead not change the price elasticity of demand. 2c. Impact on westward Australian Producers RevenueThere will be a shortage in the market for bananas due to the cyclone and so only West Australian production which comprises of 5% of the nub production will be ready(prenominal) in the market. No import of bananas is allowed due to biosecurity risks. Since bananas are inelastic in nature the change in quantity demanded is little responsive to changes in price. Total revenue (quantity demanded*price) of West Australian producers revenue will increase. A good course of instruction can reduce k indle income as the quantity demanded remains same, supply increases and so the price goes down. 3a. Government preventativeGovernments mostly put minimal price horizontal surfaces and restrict imports of unsophisticated products to support the farmers. Since the elasticity of these products is low, an increase in price raises the total revenue of the farmers. A good bumper year results in an increase in the quantity demanded which leads to a fall in price hence a fall in the revenue earned by farmers. A fall in the production of agricultural products will increase price and thence the revenue for the West Australian farmers. Farmers in Queensland will their little production at high prices. The government can interject by either put upting price ceiling or radical.Price crownwork A price ceiling gist that the price of bananas cannot exceed the utmost price set by the government. A price ceiling above the equalizer price will have no instal, since equilibrium can be at tained. A price ceiling to a lower place the new equilibrium will be effective. But it will not be respectable for farmers as they will be forced to swop at or below the maximum price ceiling. This will result in surplus demand. The graph below shows the effect of establishing a price ceiling below the market price. Price traumatise A minimum price fundament agent that the banana growers cannot sell at a price below the price set by the government.Bananas will be exchange at or above the minimum price established. A price floor that is set at or below equilibrium has no effect because equilibrium can be attained. However, if the price floor is set above equilibrium price, it will be effective. This will be beneficial for the growers but not for the consumers. There will be an excess supply. The following graph shows establishment of a price floor above the market price. 3b. Consequences of Price Floor As shown in the graph above a price floor will result in higher prices. Th is will be profitable for the banana growers but not for the consumers.In this case the quantity supplied will exceed quantity demanded. The excess demand will have to be taken care of. The government will have to step in and vitiate the excess quantity supplied and either terminus it in the warehouse which will not be feasible since banana is a perishable good or slope it off. 3c. Should the Government Intervention be back up? The government can step in and subsidize bananas and help the unemployed workers by finding an alternate job for the septenary months till new banana crops grow. A price ceiling above the equilibrium should not be supported as it will create the potential for shocking market.Banana will be bought at the controlled price and sold at the market price. The government can support a price floor which would result in excess supply which can be bought by the government and sold at a lower price. References Samuelson A. , Nordhaus D. (1989). Economics. McGraw-Hi ll http//www. smh. com. au/ news program/national/thousands-of-jobs-gone-with bananas/2006/03/20/1142703270076. hypertext markup language Illustrations www. netmba. com/econ/ little/demand/elasticity/price http//www. smh. com. au/news/national/thousands-of-jobs-gone-with bananas/2006/03/20/1142703270076. html