Banana Economics Assignment

The article ¡§Pain at checkout as WA bananas go east¡¨ by Regina Titelius and Jennifer Eliot states that in the wake of cyclone Larry¡¦s unforgiving wrath on Queensland, banana prices have soared throughout the nation over the last month and are expected to rise even more following WA¡¦s wholesaler Mercer Mooney declared that Carnarvon bananas would be shipped east. Following cyclone Larry¡¦s destruction on Queensland, it has wiped out about 80 per cent of Australia¡¦s bananas destroying fruit worth $300 million, thus leaving Australia to possibly face a 3 year shortage as Queensland¡¦s banana industry slowly recovers from the damages. However, to really see the full impact of the cyclone on banana prices and the effect on society¡¦s welfare, the economic aspects of demand and supply, elasticity, consumer and producer surplus, total surplus and the government¡¦s subsidy for banana farmers will be analysed in this report.

The economic aspects of supply and demand the most basic fundamental concepts in economics used by economists to analyse competitive markets. The quantity demanded of any good is the amount of the good that buyers are willing and able to purchase. The law of demand claims that, ceteris paribus, the quantity demanded of a good falls when the price of the good rises. The quantity supplied of any good or service is the amount that sellers are willing and able to see. The law of supply states that, ceteris paribus, the quantity supplied of a good rises when the price of the good rises (Gans, King and Mankiw, 2005).

Queensland¡¦s ¡¥region [that] produces over 90 per cent of Australia¡¦s banana crop, has been wiped out for this year¡¦ (Koch, Wahlquist, 2006), and as a result of the decrease in the number of banana suppliers, prices immediately began to soar dramatically throughout the nation. Australian Banana Growers Council chief executive Tony Heidrich had already suggested that banana prices were ¡¥certainly going to go up and go up