Microeconomics Assignment | Answers

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Student ID

MICROECONOMICS1
Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................5
Answer 3..........................................................................................................................................9
Reference.......................................................................................................................................11

MICROECONOMICS2
Answer 1
(a)
Figure 1: Equilibrium in banana market
Source: (Created by the Author)
According to the theory of supply and demand, market equilibrium is determined by the
crossing point between supply and demand curves because at this crossing point the demanded
quantity of a product is same as the supplied quantity of the product in the market (Cook 2017).
Therefore, the amount of quantity traded at this point is the equilibrium quantity and the price
given at the point is the equilibrium price. Therefore, considering the above discussion it can be
inferred that the equilibrium quantity and price in the banana market is 2250 boxes and $2.5
respectively.
(b) The price of the banana in the market has reduced from equilibrium price $2.5 to $1.5 due to
some reason. It can be easily observed in figure 1 that at price $1.5 quantity supplied of banana
is lower than the quantity demanded. Therefore, it can be inferred that due to $1.5 price of
0 500 1000 1500 2000 2500 3000 3500 4000 4500
0
1
2
3
4
5
6
7
Market for Banana
Quantity demanded (boxes per week) Quantiy supplied (boxes per week)
Quantity
Price

MICROECONOMICS3
banana there is a shortage in the market (Aragon 2016). Hence, there is excess demand in the
market of banana. Perceiving the profit prospect, the suppliers of banana will increase the price
to the level till which the consumers are willing to pay in order to meet their excess demand. In
addition to this, the suppliers will increase the supply in order to increase revenue and thereby
profit (Norvell and Horky 2017). Thus, after adjustment, the market will operate at the
equilibrium where price is $2.5 and quantity is 2250 boxes.
(c)
Figure 2: Supply decrease in banana market
Source: (Created by the Author)
A cyclone occurred in QLD and due to that, some of banana firms in the state is
destroyed. Thus, this destruction adversely affected the production of banana and thereby the
supply of banana in the market declined (Neupane 2017). The market supply of banana per week
has fell by 500 boxes at each price. Hence, this drop in supply caused the market supply curve of
banana to shift leftward and as a result, the price of banana increased. Therefore, after the drop in
0 1000 2000 3000 4000 5000
0
1
2
3
4
5
6
7
Market of banana after fall in supply
Quantity demanded (boxes
per week)
Quantity
Price