Evaluations of the two policies

Running head: ECONOMICS
Economics
Name of the Student
Name of the University
Course ID

ECONOMICS1
Table of Contents
Answer 1....................................................................................................................................2
Answer 2....................................................................................................................................5
Answer 3....................................................................................................................................9
Introduction............................................................................................................................9
Discussion..............................................................................................................................9
Conclusion............................................................................................................................10
References................................................................................................................................11

ECONOMICS2
Answer 1
a)
Figure 1: Equilibrium in the banana market
In a market equilibrium outcome is obtained where demand and supply coincides. In
the banana market as described in the above figure demand and supply intersects at the point
e. Corresponds to the equilibrium banana’s price equals approximately $2.5 and equilibrium
quantity in the market approximately is 2250 boxes.
b)
Given the banana’s price was at $1.50 per box, this indicates a price lower than
equilibrium. At the lower price, demand for banana increases while that of supply of bananas
fall. As a consequence, available supply of banana falls short of the market demand causing a
shortage in the banana market (Pindyck and Rubinfeld 2015). Because of the resulted
shortage sellers of banana will rise price to reduce the demand side pressure. There will be a
continuous increase in banana’s price until it reaches the equilibrium.

ECONOMICS3
c)
Figure 2: Effect of a decrease in supply of bananas
When cyclone destroyed some of the banana farms in QLD, there is a fall in supply of
bananas which shifts the supply curve inward. The supply curve moves from SS to S1S1. The
bananas market attains equilibrium where the new supply of banana intersects the existing
demand. New equilibrium occurs at e1. Following decline in supply, equilibrium quantity
falls from 2250 to 2000 boxes and equilibrium price rises from $2.5 to $3.
d)
Figure 3: Effect of a decrease in both demand and supply of bananas