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Course:- Microeconomics
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Reference No.:- EM1332




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Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

Fruit, veg costs surge

Todd Dagwell

The Herald, 25th January, 2011

Popular salads and fresh fruit juices are being scratched off menus as small business owners struggle with the rising cost of fruit and vegetables caused by the Queensland flood crisis. Sumo Salad Charlestown Square and Westfield Kotara owner Paul Phelan said he had been forced to substitute ingredients in some popular salads because of supply problems. He said cos lettuce and pumpkin were extremely difficult to find, and the available produce was terrible quality and expensive. "Pumpkin has tripled from $1.50 to $6 a kilo and the quality is really bad," Mr Phelan said.

Thurst Burst Marketown owner Neville Winter said finding quality fruit at an affordable price had been the biggest problem since the flood crisis began. Pineapple and oranges, two of the most popular ingredients in fresh fruit juices, had doubled in price. "Pineapple use to be $28 a box and the other day it was $56 a box, while oranges have doubled," Mr Winter said. "All other boxes of fruit have gone up by at least $10 a box." A spokesman for Boost Juice Charlestown said the shop was considering buying a large amount of produce and freezing it before the supply situation became any worse. All three businesses expect the problem to worsen in coming months.

http://www.theherald.com.au/news/local/news/general/fruit-veg-costs-surge/2056289.aspx  

Assume that the Australian government wishes to keep fruit and vegetable prices from rising to a socially unacceptable level. There are two options being considered: lift the import ban or impose a price ceiling.

You are expected to write an essay exploring the major issues raised in the article. In particular, you need to address the following issues: 

  1. Use the demand and supply model to show the likely short-term impact of the flood on the price and quantity of fruit and vegetables in Australia.
  2. a) If a technological breakthrough ensures imported pumpkins are as good as domestic qualities and are thus allowed to be imported into Australia, use the demand and supply model to explain the short-term impact on the pumpkin market.

b) However, if consumers are uncertain regarding the quality of imported pumpkins, use the demand and supply analysis to explain the impact on the pumpkin soup market in the restaurant industry.

  1. Referring to the determinants of price elasticity of demand as they apply to pineapples analyze the likely impact on the market if the government imposes a retail price ceiling of $40 a box on pineapples. Specify any assumptions you have made. 

Summary:

The assignment is about how the concepts of demand and supply interact and arrive at equilibrium prices of perishables such as fruits and vegetables. The differences in supply of and demand for fruits and vegetables are studied on graphs. The points where supply and demand curves intersect is generally taken as the price of the product, in this case, fruits and vegetables. Fruits and vegetables are very much susceptible to price changes due to their volatile supply.

Contents:

Introduction

Lifting the import ban

Price ceiling




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