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Use Demand And Supply Models To Impact Market Conditions

Question

Cyclone Marcia wipes out bumper nut crop

Errol Vass was two weeks away from harvesting a bumper crop of macadamias when Cyclone Marcia stormed in. Now his Yeppoon-based orchard is in ruins, and Mr Vass is faced with the heartbreaking reality that this could be the end of the road for his 22-year farming venture. "It's basically destroyed the whole orchard, so we've got nothing left now," he told AAP on Wednesday. "We were looking like we were going to get a bumper crop. Everything was looking really good, but it's not looking so good now." Mr Vass said Marcia tore the limbs from each of his 1700 macadamia trees, and destroyed at least $150,000 worth of nuts. "That's my business for the year. It's gone," he said. "It would take 15 years to replant and get it back to that level of income." That's a path he's unlikely to take. "I thought about how old I am, and 15 years puts me into my seventies and I don't want to be doing it at that age," he said. "I think it's time to find something else to do." Mr Vass said he and his family would spend the next 12 months cleaning up the orchard, before making a decision about whether to keep the farm. "I haven't thought that far ahead. Sell the property and move on? That's a big possibility." https://au.news.yahoo.com/thewest/a/26430693/cyclone-marcia-wipesout-bumper-nut-crop/

1. Assuming macadamias are sold in a purely competitive market, use a well labelled demand and supply diagram model to explain how market equilibrium price and quantity for macadamias are determined. Clearly explain the equilibrating process.

2. Use demand and supply model to describe the impact, ceteris paribus, on the (pre-cyclone) market for macadamias, stemming from consumers’ expectation of a bumper crop before Cyclone Marcia stormed in. Explain the equilibrating process.

3. Use demand and supply model to illustrate the impact of Cyclone Marcia on the equilibrium price and quantity in the market for macadamias. Clearly explain the equilibrating process to answer the question. Also use demand and supply model to explain the impact of the cyclone on the market for other nuts.

4. Discuss the determinants of the price elasticity of demand for macadamias, and explain whether you believe the demand for macadamias is elastic or inelastic. Based on your discussion of elasticity, illustrate and analyse the effect of the cyclone on total consumer expenditure in macadamias market.

 

Summary

The question belongs to Economics and it discusses about using demand and supply models to describe impact on market conditions and determinants of price elasticity of demand.

Total Word Count 1574

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