Question

QUESTION 5 Australia produces approximately 375 million kilograms of bananas annually with the vast majority of bananas grown in North Queensland, Australians consume 310 million kilograms of bananas at a market clearing price of $5/kg. Answer the following questions: a. How many kilograms of bananas would need to be traded overseas for the market to be in equilibrium? million kilograms. Answer to the nearest million (with no decimal places). b. The banana industry successfully lobbies the government to implement a price floor of $9/kg on bananas. The quantity of bananas demanded falls to 200 million kilograms. At 200 million kilograms the opportunity cost of producing the last kg of bananas is $3. If the banana industry starts producing bananas as soon as the price goes above $0/kg, how much consumer surplus is converted to producer surplus when the price is increased from $5/kg to $9 per kg? $ million. Answer to the nearest million (with no decimal places). c. If the original consumer surplus was 930 million dollars, has the price floor made the consumers better off? Type Y for Yes or N for No.

Answer 1

Total produce of banana = 375 million kg

Domestic consumption = 310 million kg

Market clearing price = $ 5 / kg

A. After domestic purchase all the surplus quantity could be traded with foreign nation.

65 million kg

B. Price increased from $ 5 to $ 9 and quantity changed from 310 mn kg to 200 mn kg.

Total CS that got added to PS = (9-5)×200 = $ 800 mn

C. Consumer surplus at equilibrium = $ 930 million

CS = X (P – P.) (Qe – 0)

— 930 = * (P – 5) (310 – 0)

310P – 1,550 = 1860

310P = 1860 + 1,550

310P = 3410

P= $ 11

Now, calculating the new CS

-CS' = 5 * (11 – 9) × 200 = $200

Before price change consumer surplus = $ 930 million

Now, after price change consumer surplus = $ 200 million

Answer is No- N.

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