Business Economics | Assignment | Answers

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Student:
Name of the University:
Author note:

1
BUSINESS ECONOMICS
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................5
Answer 3..........................................................................................................................................9
References......................................................................................................................................12

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BUSINESS ECONOMICS
Answer 1
(a)
Figure 1: Market equilibrium for banana
(Source: Author)
The equilibrium price and quantity for the market of banana are $2.5 and 2250 boxes
per week. A market equilibrium is the point where quantity demanded equals quantity
supplied in the market (Cowell 2018). Hence, in the given market, the demand and supply
curves for banana intersect at price $2.5 for 2250 boxes per week and that is the market
equilibrium.
(b) If the price of banana was $1.50 per box, there would be excess demand in the market as
this price is below the equilibrium price of $2.5. This would create shortage in the market
of banana, that is supply is less than demand.
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Banana Market
Quantity demanded (boxes per week)
Quantiy supplied (boxes per week)
Quantity
Price

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BUSINESS ECONOMICS
When shortage exists in the market, the excess demand for the product pushes up
the market price till the quantity demanded becomes equal with the quantity supplied.
The firms would raise their price of banana to get more revenue. Hence, both the price
and quantity supplied in the market would increase.
(c)
Figure 2: Market equilibrium after decreased supply
(Source: Author)
The supply of banana declined due to a cyclone in Queensland, Australia. The fall
in supply is 500 boxes a week for each price level. While the market demand remained
same, the supply curve for the bananas would shift leftward due to the fall in supply.
Shortage in supply creates excess demand in the market and that pushes up the market
price. As shown in the graph above, the equilibrium price rises to $3 a box from the
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Banana Market After Decrease in Supply
Quantity demanded
(boxes per week)
Quantiy supplied
(boxes per week)
Decreased supply
(boxes per week)
Quantity
Price