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Economic Disruption

In: Social Issues

Submitted By ayya6364
Words 879
Pages 4
Question 1

a). Since the cyclone is a non-price determinant, it will affect the supply of bananas. The supply of bananas will decrease as a result of the cyclone. Supply curve will shift from S0 to S1. This will cause a shortage in the original equilibrium of Eq0. Demand now exceeds supply causing a rise in the price of bananas. Concurrently, the quantity supplied will increase (movement upward the new supply curve, S1) while the quantity demanded will decline (movement leftwards of the demand curve, D0). Price of bananas will continue increasing up to the point where the quantity demanded equals quantity supplied and shortage is eliminated. We have now reached the new equilibrium of Eq1.

b). School holiday season is deemed to be a non-price determinant; it will affect the demand of interstate air travel. The demand for interstate air travel will reduce as the school holidays end causing the demand curve to shift to the left from D0 to D1. This will create a surplus in the original equilibrium of Eq0. Supply is now exceeding demand and causes deterioration in the price of interstate air travel. As the price reduces, the quantity supplied will reduce (movement down the supply curve, S0). Simultaneously, quantity demanded increases (movement downward the new demand curve, D1). Price of interstate air travel will decrease up to the point where the quantity supplied equals quantity demanded and the surplus is eliminated. This will bring us to the new equilibrium of Eq1.

c).

For Diagram 1, the war will cause the country’s resources to be affected thus causing a decrease in supply of petrol (the supply curve will shift from S0 to S1). This will produce a shortage in the original equilibrium of Eq0. Demand now exceeds supply causing a rise in the price of petrol. As the price increases, the quantity supplied of petrol increases (movement…...

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