2 Use demand and supply model to describe the impact on equi

2. Use demand and supply model to describe the impact on equilibrium quantity and price in the market for bananas, ceteris paribus, stemming from bad weather back in 2004. Explain the equilibrating process. Also describe this impact on the price of related goods? (7 marks)

Solution

Demand and Supply equalibrium is given below in a table:

The equalibrium is at price 20 where demand and supply are same.

Higher the price, low the demand for banana which will ultimately increase the demand of other fruits available in the market. And supply will increase. Due to high price, people will not demand and there will be surpuls of banan in the market. Production and consumption of products with the use of banana will fall as the prices go high. Related items will gain more importance and will be consumed more as compared to banansa.