Question

1 This is a small case study on the banana Market in Venezuela, we can see below that there are 10 factors that affect the banana market. Assume that bananas are a normal good using the letters A-H below (Note that a single letter can be used more than once) Specify what each letter will result in

1. an increase in demand
2. an increase in supply
3. an increase in quantity demand
4. an increase in quantity supplied
5. a decrease in demand
6. a decrease in supply
7. a decrease in quantity demand
8. A decrease in quantity supplied

_______ the price of Plantains (a substitute) increases

_______ Medical studies conclude that banana cause intestinal problems

_______ Snow in Africa kills most of the banana crops

______the price of Bananas decreases

_____ Families average income in Venezuela decreases

_____ Banana importers in Venezuela agree at a convention to charge higher prices to increase profits

____the price of banana pudding increases

___ the Venezuelan government imposes a special tax on banana producers/importers to raise government revenue     

___ war breaks out between Africa and Mexico, who are major banana producers

___ the Venezuelan government provides a subsidy to operate to operate an experimental banana plantation in the balkan islands greenhouse

Answer 1

• Price of plaintiff which is a substitute of banana increases cause aggregate demand of banana to rise because consumers look for cheaper alternative available. It will increase demand. Ooption A is correct.
• Report says that banana cause intestine problems, it will reduce demand of it. Option E is correct.
• Snow in frica kills most of banana crops which there will be less supply of banana in the market. Option F is correct.
• Average income in Venezuala decreases which will reduce willingness to pay by consumers and result in fall in demand. Option Eis correct.
• If they are charging higher price to increase profits, it will cause movement along demand curve and decrease quantity demanded. Option G is correct.
• Price of banana pudding which is a complement good of banana. It will leave less money with consumers to spend on banana and reduce demand of it. Option E is correct.
• Imposition of special tax will raise price paid by consumers and cause movement along demand curve. Option G is correct.
• War breaks out between two major producers which will reduce their production or destroy some of the crops which result in fall in supply. Ooption F is correct.
• Government provides subsidy to to operate banana plant which will raise its production level and aggregate supply of banana. Option B is correct.

Note: Change in price of banana cause movement along demand / supply curve which change quantity demanded / supplied. All other factors apart from change in price shift demand or supply curve.