Economics Report: Impact of Market, Policies, and Cyclones

This economics report analyzes market dynamics using supply and demand diagrams to illustrate equilibrium price and output in the banana market, including the effects of price controls and supply shocks like cyclones. It then examines the implications of price floors and tariffs, evaluating their impact on consumer and producer surplus, and the creation of deadweight loss. The report also explores the demand for bicycles, discussing factors like price elasticity and income elasticity, and suggests government policies to encourage cycling as a means of transport. The report concludes by critiquing the fairness of economic policies, particularly price floors and tariffs, and suggests alternative approaches to promote economic development and consumer welfare, such as subsidizing farmers and removing trade tariffs. The report uses figures to illustrate the concepts and supports its arguments with relevant academic references.

Running head: ECONOMICS
ECONOMICS
Name of Student:
Name of University:
Author Note:

Table of Contents
Answer to Question: 1.....................................................................................................................3
Part (a).........................................................................................................................................3
Part (b).........................................................................................................................................4
Part (c).........................................................................................................................................4
Part (d).........................................................................................................................................5
Answer to Question: 2.....................................................................................................................7
Part (a).........................................................................................................................................7
Part (b).........................................................................................................................................8
Part (c).........................................................................................................................................9
Subpart (i)..............................................................................................................................10
Subpart (ii).............................................................................................................................10
Part (d).......................................................................................................................................10
Part (e).......................................................................................................................................11
Answer to Question: 3...................................................................................................................12
Reference List................................................................................................................................15

Answer to Question: 1
Part (a)
Figure 1: Demand and supply diagram for the banana market
Source: As created by the author
The equilibrium price and output is denoted by the pint where the quantity demanded by
the buyers is equal to the quantity demanded by the suppliers. Demand and price are inversely
related to each pother such that a rise in price leads to a fall in quantity demanded. Price and
supply curve is positive related such that a rise in price helps the enables suppliers to produce
more output. Equilibrium occurs at the point where the price and quantity matches with suppliers
and customers. The orange line denotes the supply curve and blue denotes the demand curve
which intersects at a definite point. The corresponding price and output are 2.5 dollars and 2250
boxes per week.

Part (b)
Figure 2: Change in equilibrium price and output when price is set at 1.5 dollars
Source: (As created by the Author)
When the price of banana is fixed at 1.5 dollars a box, then quantity demanded exceeds
the quantity supply. The quantity demanded remains fixed at 1500 box each week, whereas the
quantity supplied remains at 2750 boxes each week (Zeegers, T., 2015). This is because when
prices go down, there is an increase in the quantity demanded, but producers are unable yo
produce at such low price. Therefore, this price creates a shortage in the market.
Part (c)
Cyclone has destroyed the banana farms which has significantly changed the banana
supply. The quantity supplied decreased by 500 boxes at each level of price and according the
equilibrium price and output is denoted.

Figure 3: Change in equilibrium price and output due to change in quantity supplied
Source: (As created by the Author)
The demand curve does not change and remains as the cyclone has not changed the
consumer demand. The supply curve changed due to change in quantity demanded with respect
to price which changed the equilibrium significantly (Taghizadeh-Hesary 2015). The new
equilibrium occurs at the point where the equilibrium price is at 3 dollar and the equilibrium
quantity is at 2000 boxes per week. The change can be seen from a rise in equilibrium price and
fall in equilibrium quantity.
Part (d)
The cyclone has not only changed the quantity demanded but has also changed the
quantity supplied. The quantity supplied has gone down at each level of price, whereas the
quantity demanded has increased by 500 at each level of price. This will change in the value of
equilibrium price and output level effectively.

Figure 4: Change in equilibrium quantity and price due the disastrous effects of cyclone
Source: (As created by the Author)
The consequences of the cyclone can be seen from the change n equilibrium price and
output respectively (Hafstead and Williams 2018). The new equilibrium price occurs at the point
3.5 dollars and the quantity is at 2250 box per week. Therefore, the overall effect of lower supply
quantity and higher demand quantity led to rise in price by keeping the same level of
equilibrium.

Answer to Question: 2
Part (a)
The minimum price set by the government on certain goods which is sold in unfair
markets at an extremely low price level is known as price floor. Price floor prevents the price
from dropping at a low level and help to maintain an optimum amount of profit for the sellers.
Price floors are normally set above the equilibrium level. A price floor on wheat in US will help
to maintain the income of the farmers.
Figure 5: The effect of price floor on economy
Source: (As created by the Author)
Initially, the equilibrium price and output are Pa and Qa respectively which is denoted
from the intersection of supply (S) and demand (D) diagrams. When prices are set above the

equilibrium level that is Pf which is the flooring price, the quantity demanded goes down. As per
the law of demand, higher price lowers the consumer demand and raises the quantity supplied
(Long et al. 2016). The quantity supply goes up and reaches to Qs and quantity demanded falls to
Qd, which creates a surplus of amount Qd Qs. Consumers will shift their consumption for other
substitute products that can be used in place of wheat because US dos not trade wheat. This will
lead to a fall in famer’s income.
Part (b)
Price floor has several negative impacts such that it lowers the surplus amount and leads
to dead-weight loss that is a loss for the economy.
Figure 6: Effect of price floor on consumer and producer surplus
Source: (As created by the Author)

Surplus is earned when price paid by buyers and received by sellers is more and less than
the market price. Area under demand curve above price denotes consumer surplus (CS). The area
above supply curve below rice is the producer surplus (PS). Deadweight loss occurs when there
is an allocative inefficiency and one can utilize that amount which ultimately gets wasted.
Before price floor, CS= area of triangleABPa
PS= Area of trianglePaBC
After imposition of price floor, CS= area of trainagleADPf
PS= Area of parallelogram PfDEC
Deadweight loss= area of triangle DBE
Therefore, consumer surplus goes down and producer surplus might increase, decrease or remain
same, which depends on the elasticity of demand and supply curves. The overall change is the
fall in the total surplus and creation of deadweight loss in domestic wheat market of US.

Part (c)
Figure 7: Effect of tariff om Chinese imports
Source: (As created by the Author)
Subpart (i)
Pa is the market price and Pi is the import price of types. Qss is the domestic quantity supplied
and Qdd is the quantity demanded initially. QssQdd amount was imported.
Pt is the price after imposition of tariff. Import tariff lowers the consumer demand from
Qdd to Qd and raises domestic production from Qss to Qs. Thus, Qs is the quantity of tires produced
in US and Qd is the quantity demanded.
Subpart (ii)
Previously CS was area of trainagleAIPi and after price CS reduces to area ADPt.
Producer surplus was area of CHPi, which increased to area of PtEC. Government collected a
revenue that is the area of rectangle EGDF (Ferenczi 2016.). There again occurs a deadweight

loss which is represented by areas DGI and EFH. Producers of US gain and consumers lose as
they needs to pay high price. But the overall impact falls on society as deadweight loss.
Part (d)
None of the policies are fair because both price floor and tariffs leads to a loss in overall
surplus value and causes deadweight loss. We have seen how price floor causes a surplus and
leads to deadweight loss that slows the economic performance. If the value of deadweight loss
goes up on a continuous basis then the economic growth will slow down. Consumers will lower
their demand due to low consumer surplus. Price floor is effective for those sellers who gets the
high price. Otherwise, it is not effective as it might lead to fall in producer surplus as well
(Rusnakova 2015). Therefore these policies needs to be avoided by the US government in order
to reach efficient allocation of resources. Similarly tariffs, protects the domestic production but
lowers consumer demand which lowers the value of consumer surplus.
Part (e)
Trump needs to change the policies of price floor and tariff and maintain a smooth
economic development. Tariffs are affecting the consumers negatively with a higher price
structure. Tires are widely used in US for manufacturing of cars. Rise in import tariffs is creating
problem for other firms as well. Instead of imposing price floor, government must subsidize
farmers for wheat production such that they can earn greater revenue from the sale of wheat at
lower prices. US must facilitate the import of tires from China without imposing trade tariff and
enhance the productivity of automobile industry.

Answer to Question: 3
According to the Australian Cycling Promotion Foundation (ACPF), the amount of
people regularly riding bicycles will increase from an amount of 33 percent to about 66 percent
in the coming future. An effective understanding of the effectiveness of using bicycles needs to
be provided with respect to benefits and demand parameters. The aim of the paper to write a
report to the government by giving incentives that encourages cycling to be used as a means of
transport.
Cycling is used as an effective tool to maintain healthy lifestyles and maintain the level
of pollution by using it regularly as a means of transport. Cycling is widely advised by doctors
as it protects from various diseases like heart attack, strokes, cancers, Obesity, Diabetes,
depression. The demand for bicycles can be denoted from the study of price elasticity of demand.
The elasticity of demand measures the degree of change in demand quantity with respect to
change in price of goods or substitute goods or change in income.
Cross price elasticity denotes the change in demand of other goods due to change in price
of that good. An increase in price of bicycles will lead to a fall in demand for bicycles and raise
the demand for motor cycles giving a high value of cross-price elasticity of demand. Bicycles are
to be used in place of motor cars which is possible by keeping a low price or making people
understand about the importance of using bicycles (Zhang et al. 2016). When price of motors
cars go up, people again switch to bicycles. Thus, government needs to increase awareness about
the benefits of bicycles such that cross price elasticity goes down and the cross price elasticity
becomes inelastic.
Cross elasticity of demand= (Percentage change in the demand quantity of
bicycles)/(Percentage change in price of motors)

Quantity
Income
Inelastic demand
I
I1
QQ1
Generally, the demand for bicycles are income elastic such that a rise in income leads to
fall in demand for bicycles and prefer more of motor cycles (Stier et al. 2016). This is because
people consider bicycles as inferior goods such that a reduction in income causes a rise in
demand and vice-versa.
Income elasticity of demand = (Percentage change in quantity demanded)/ (Percentage
change in income)
Figure 8: Income elasticity of demand for bicycles
Source: (As created by the Author)
A rise in income from I to I1, leads to a fall in quantity demanded of bicycles from Q to
Q1. Initially, when income was I, the quantity demanded was Q amount. When income went up,
demand for bicycles went down. Thus, the government must make policies that will make
demand inelastic.

There are several factors that affect the demand for bicycles enormously. One such factor
is the price of petrol. When there is a hike in petrol prices, people use substitute products that
does not consume petrol like the bicycle (Zeegers 2015). Various bicycle tournaments and
awareness programs are organized to make people aware about the effectiveness of riding
bicycles. This will enable to maintain an affordable and stable prices for bicycles. These products
are eco-friendly and does not consume much energy which has various health benefits as well.