In a absolutely competitory market, there is no authorities intercession in the market. The monetary value is normally established when the equilibrium monetary value and measure is achieved ( Jackson, J & A ; Mclver.R 2007 ) . Equilibrium means that consumers are willing to purchase at this monetary value and manufacturers are willing to provide. By mentioning to the graph Figure 1, we can see the equilibrium is at the intersection point between demand curve and supply curve.
Pe means the monetary value equilibrium and Qe means measure equilibrium. In an equilibrium province, jobs like deficit and excess will non go on in the market because the measure demand and measure supply are in balance. Deficit will normally go on when the monetary value is below the monetary value equilibrium, we can see that when monetary value beads from Pe to P0, the measure supply will diminish because providers are willing to provide at this monetary value where they have low gross while quantity demand will increase because consumers find bananas is truly inexpensive and they should purchase it.
Demand exceeds supply. Surplus will go on when the monetary value is above the monetary value equilibrium. From the graph, when monetary value addition from Pe to P1, the measure demand drops because consumers find it really expensive and the bananas does n’t worth that monetary value while measure supply addition because the providers are willing to provide every bit much as they could as the high monetary value of bananas would assist them to bring forth more gross. Demand exceeds supply.
The natural catastrophe, cyclone has caused the supplies of bananas to diminish enormously. The monetary value snap of demand in bananas market is said to be inelastic when we look into the determiners. First of all, Bananas are Australia ‘s No.1 merchandising fruit, it means there is a immense demand for bananas in Australia. ( ABGC n.d ) Bananas industry appears to be one of the largest fruit turning industries in Australia and besides an of import subscriber to the economic systems.
Bananas are among Australia ‘s top 10 supermarket lines. First determiner would be the handiness of utility goods and for bananas, there is deficiency of replacements for it. Apparently the demand would be inelastic when there is no replacements. Second determiner is proportion of income. Bananas monetary value has shot up from around $ 3 per kilogram to $ 15 per kilogram ( ABCG n.d ) . Consumption of bananas would be still a little fraction of income although the monetary value has increased. Therefore, consumers are non sensitive towards the monetary value altering. Third is Luxury versus necessity.
Bananas can be considered as a necessity in Australia because people still consume bananas although the monetary value has increased. Harmonizing to the Australia Banana Growers ‘ Council, they estimated that 28 million of bananas are consumed each hebdomad, which means a individual consume 60-70 bananas and is about 13kg averagely ( ABCG n.d ) . Fourth determiner would be clip. The clip would be in a short tally because consumers are hard to alter income and penchant instantly right after the cyclone. Peoples would still believe that the monetary value is acceptable and they will still purchase it in short tally.
It would be an elastic supply for bananas market because there are around 800 banana agriculturists in Australia ( chiefly from Queensland and New South Wales ) that are estimated to bring forth about 23 million 13 kilogram cartons of bananas ( ABCG n.d ) . When there are a batch of supplies, its monetary value snap of supply would be elastic and long tally. However, the supply has decreased as the cyclone has caused a critical harm on banana farms.
The monetary value has shot up because there is a deficit in bananas market. Banana consumers will be given to vie and offer up the market monetary value for bananas. As the supply curve shifted to go forth, it shows that the monetary value has gone up from P0 to P1 and measure demanded has decreased from Q0 to Q1. ( refer to calculate 2 ) It so moves to the new monetary value equilibrium from e0 to e1 and it shows that a big alteration in monetary value has resulted a little proportionate alteration in measure.
Measure demanded falls means many clients ca n’t afford the new equilibrium monetary value. Entire outgo on bananas is equal to entire gross gained by Sellerss. From the graph, the R1 shaded country agencies gross gained, R2 shaded country agencies gross loss. Since the demand is inelastic, the gross gained will be more than gross loss when the monetary value additions. Therefore, the entire gross of Sellerss increased.
In economic system, whenever the supplies is found limited and could n’t fulfill all the demands in market, providers would be given to increase the monetary value every bit high as possible to maximise their net income. It would be a benefit to providers but a disadvantage for the consumers. In such state of affairs, authorities intercession is needed to put up a monetary value ceiling in the market of bananas. Price ceiling means a maximal legal monetary value degree that providers can put for the goods they are selling Jackson, J & A ; Mclver.R 2007 ) .
Price ceiling for this instance would be a protection for the consumers as they do n’t hold to pay for unreasonable high monetary value set by providers. However, seting a ceiling monetary value in the market does n’t settle the jobs. It may do a bigger deficit. The deficit would do trouble in rationing the limited supply of bananas. From g we can see that measure supply is falling farther from Qe to Qs and Quantity demand has increased from Qe to Qd. Apparently, the measure supply contributed more to shortage comparison to consumers.
Besides that, black market monetary value will increase further. Puting a ceiling monetary value is really encouraging black market. All these effects such as black market and deficit will do the market efficiency to go inefficient. Supplier will non be happy to provide because they have low income merchandising bananas at ceiling monetary value. The authorities will have less gross revenues revenue enhancement from banana industry every bit good.
In decision, there are pros and cons if authorities intervenes the market by implementing monetary value ceiling. However, the monetary value ceiling would merely hold short-run effects because the supply could retrieve in within 6months to 12 months period.
Mention Lists
- Australian Banana Growers Council Inc. ( ABCG ) n.d, Media Kit, available through www.australianbananas.com.au/public/media/downloads/media_kit.pdf, viewed at 2 September 2010.
- Jackson, J & A ; Mclver.R 2007, Microeconomics, 8th edn, McGraw-Hill, Australia.
