Australia Market for Banana Before and After Cyclone Yasi and How Government Dealing with It

Australia market for banana before and after Cyclone Yasi and how government dealing with it

From the assessments in Queensland, the results show the Cyclone Yasi, a category 5 storm that strike Australia on Feb 3 2011 wiped out 75 per cent of local banana crop. The banana industry may need to use up to 12 to 18 months to fully recover from the strike (Greenblat 2011). The prices of banana immediately shot up from $2/kg to as high as $15/kg at Coles and Woolworths(Durie 2011). This consequently become an important issue to lobby groups that demand for government to allow the imports of bananas. It is also government will not import bananas from other countries to protect the welfare of homegrown crop.  

The market function is where buyers and sellers in the market feel satisfied when a transaction take place. Banana is in the category of fruits and known as perfect competition(Economywatch 2010). There is no government intervention involve in this market. Before the impact of Cyclone Yasi, the price is determined when market equilibrium is achieved. 

[pic 1]

                                                                    Figure 1

Market is in equilibrium when Supply(S) equals to Marginal Cost(C) and Demand(D) is equals to Marginal Benefit(MB) as shown in figure 1. The equilibrium point from the intersection of demand and supply curve to X and Y axis indicate the equilibrium price (Pe) and equilibrium quantity(Qe). This is the price the market charge to bananas and quantity demanded from consumer. Buyer and the seller are well informed and will be able to satisfy themselves with the right price out. The red triangle represents the consumer surplus where pink triangle represents producer surplus. Both consumer and producer surplus are the same. From the economic point of view, when MC=MB , the market is efficient when social surplus is maximised. Therefore, there is no any social loss and deadweight loss(DWL) exist in the banana market. Finally, the issue of shortage nor surplus will not arise because the quantity demand and supply are in balance.

Next, due to the strike of Cyclone Yasi, Australia grown farmer is unable to supply as much as before. This encounters a decrease of banana in the country. When supply of good decrease, price of goods will increase as illustrate in figure 2 below. When supply of banana moves from S1 to S2, this causes the price rise from P1 to P2.

[pic 2]

                                                                         Figure 2

As mentioned in the case study, the price of the banana increase from $2/kg to $15kg. This show in the figure 3 below.