Answer to Question #251061 in Microeconomics for Fawad Ahmed

Question

Explain each of the following statements using supply-

and-demand diagrams.

a. When a cyclone hits Queensland, the price of

bananas rises in supermarkets throughout the

country.

b. When school holidays end, the price of picture

tickets plummets.

c. When a war breaks out in the Middle East, the price

of petrol rises, and the price of a used Ford Falcon

falls.

Answer 1

(a)

Cyclone damages bananas produced in the farm, hence the supply of bananas will reduce. Therefore, the market price will increase.

Price increases from $P_E$ to $P_N$

(b)

The price of picture tickets plummets because there is a decrease in demand, hence market price falls.

Price falls from $P_E$ to $P_N$

(c)

Because people will want to escape from war, there will be a high demand for petrol hence the price of petrol rises.

Price rises from $P_E$ to $P_N$

However, no one will still want to buy the used Ford Falcon hence its price will fall.

Price of the used Ford Falcon falls from $P_E$ to $P_N$