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Economic - Essay Example

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Executive Summary Agriculture is an industry which can be understood by applying the demand and supply tools of competitive markets. The banana industry is an example of market that facilitates exchange between buyers and sellers of bananas. In a free market, price is set by the forces of supply and demand…
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Download file to see previous pages e affected by the cyclone 1 Introduction Farm market like the market for Australia’s bananas is an example of market where the forces of supply and demand work. And just like any industry, Australia’s banana industry has already faced severe short-run problems like shortage in supply and the high price of banana. These were the main issues presented by the media reports that were used in this case study. This report will try to present an economic analysis of the problems encountered by both the consumers and producers of bananas in Australia as they were the key stakeholders impacted by the issues in this case. The concepts of supply, demand, price elasticity of demand and supply, and price instability of farm products were used to analyze this case. 2 Market Demand and Supply A market is an institution or mechanism that brings together the buyers and sellers of a particular good or product (McConnell and Stanley 2005, 47). The Australia’s banana market is an example of a farm market where buyers and sellers are both considered stakeholders. Buyers or consumers of bananas represent the demand side while the supply side is represented by the growers or producers of banana. 2.1 Demand Australians consume around 20 million cartons of bananas a year, which equates to one box per person per annum or 13kgs of bananas each (Drucker 2006, par.7). This means that this amount of bananas is also the amount that consumers or buyers are willing and able to buy at any price during a specific period of time or the demand (Mankiw 1997, 89). Price and the quantity demanded are inversely related as described by the Law of Demand. In this case, banana consumers who are willing and able to exchange their money to have their bananas, will buy more bananas at lower prices and tend to buy less when price is increased. This relationship is shown in Figure 1. Aside from price, there are other determinants of demand. The price and availability of related products is one that is applicable in this case study. With the shortage in banana caused by Cyclone Larry, consumers’ demand was unchanged as they failed to look for substitute for banana. In effect, they still buy bananas despite its high price. Figure 1. Demand curve D shows the inverse relationship between price P and quantity demanded Qd. 2.2 Supply Supply is the amount of particular goods or services that producers or sellers are willing to produce and make available for sale at a given price during a specified period of time (Mankiw 1997, 91). Law of Supply explains the direct relationship of price and quantity supplied. Industry group such as Growcom and the banana growers like Naomi King (Australian Broadcasting Corporation 2006, 1) will be willing to produce and sell more bananas when price in the market is high. For them, price is also another term for income. The normal or positive relationship between price and quantity supplied is shown in a supply curve like the one below. Figure 2. Supply curve S shows the direct relat ...Download file to see next pagesRead More
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