1.The table sets out the demand and supply schedules for banana.  

(a) Suppose a cyclone destroyed some banana farms in QLD and the quantity of banana supplied decreased by 50 boxes a week at each price. Explain what would happen to the market supply and supply curve. Would the change in supply cause a shortage or surplus of banana at the initial equilibrium price? If so, by how many boxes? What would be the new equilibrium price and quantity after the adjustment? Draw a graph and illustrate the changes on your graph.  

(b) Suppose a cyclone decreased banana supply by 50 boxes a week at each price. But at the same time the demand for banana increased by 50 boxes a week at each price. What would happen to the market supply and demand curves? How and why would the market equilibrium price and quantity adjust at the end?  What would be the new equilibrium price and quantity? Draw a graph and illustrate the changes on your graph. 

2).Suppose a flood cuts the quantity of sugar cane grown by 6 per cent.   

(a) If syrup makers estimate that the change in the price of sugar cane will increase the price of sugar by 20 per cent and increase the quantity demanded for syrup by 5 per cent, what is the cross price elasticity of demand for syrup respect to the price of sugar? Does the elasticity indicate that sugar and syrup are substitutes or complements? 

(b) If coffee makers estimate that, with the change in the price of sugar, the quantity of coffee demanded will decrease by 6 per cent, what is the cross elasticity of demand for coffee with respect to the price of sugar?  Does the elasticity indicate that sugar and coffee are substitutes or complements? 

2.The table shows the demand and supply schedules for US wheat market. The US Farm Bill 2012 indicates that the domestic price of wheat will be set at $300 per tonne, which is above the market equilibrium level of $250 per tonne, in order to support for domestic wheat growers.  At the market equilibrium, 1,000 kilo tonnes (Kt) are supplied.  

Price

(dollar per tonne) Quantity

demanded

(Kt tonnes) Quantity

supplied

(Kt tonnes)

100 2,000        0

150 1,400    600

200 1,200    800

250 1,000 1,000

300    800 1,200

350    600 1,400

400        0 2,000

(a) If the US government sets a price floor of $200 a month, what is the price of wheat paid and how many tones of wheat are sold? Explain why? 

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