Question

Buddha's hand brings sweet success for growers of exotic citrus.
Mike Arnold grows around 250 Buddha's hand trees at his family farm in Waikerie, South Australia, and said the fruit was quite a good addition to their operation. Manager and owner of Reliable Fruit at Melbourne's Prahran market, Emma Guo, sells the fruit at her stall and has seen the fruit gain popularity. "It's quite popular among chefs and the restaurants; they use it in cocktails but also put it in meals with fish," Ms Guo said. Despite gaining popularity among chefs, growers in Australia did not expect the industry to grow too large. Mr Arnold said the fruit was in demand during special celebrations and events throughout the year but there was not a high demand for the fruit every week. Mr Arnold also said picking the fruit was labour-intensive, and the growing process involved a certain amount of management.

a) Draw a clearly-labelled diagram to help explain what has happened in the market for Buddha’s hands. Be sure to explain which curve has shifted and why and the likely impact on price and quantity.

b) Explain why it’s likely true that Mr Buchanan said “there was not a high demand for the fruit every week” and what impact this has on the shape of the demand curve.

c) Explain what the supply curve is likely to look like compared to other citrus fruits given that picking is labour-intensive, growing requires management and packing is complex.

d) Suppose there was a pest infestation that almost wiped out production of Buddha’s hands in Australia. Using appropriate diagrams, explain the likely impact on the market for lemons in Australia.

Answer 1

a) Draw a clearly-labelled diagram to help explain what has happened in the market for Buddha’s hands. Be sure to explain which curve has shifted and why and the likely impact on price and quantity.

As shown in the diagram a below, the demand for this exotic fruit is shifting to right due to gain in popularity and hence demand curve D1 has shifted to right. It will be expected that prices will go up from p1 to p2 with increase in quantity demanded.

b) Explain why it’s likely true that Mr Buchanan said “there was not a high demand for the fruit every week” and what impact this has on the shape of the demand curve.

It means that demand is relatively inelastic and stays around the same and hence demand curve shift remains not elastic as shown in fig. b below the shifts in demand curve to the left s not parallel but changes.

c) Explain what the supply curve is likely to look like compared to other citrus fruits given that picking is labour-intensive, growing requires management and packing is complex.

When picking is labor intensive and packing couples then. it means that supply is relatively inelastic as it cannot be changed immediately and hence as shown in fig.c supply becomes inelastic.

d) Suppose there was a pest infestation that almost wiped out production of Buddha’s hands in Australia. Using appropriate diagrams, explain the likely impact on the market for lemons in Australia.

Pest infestation will destroy fruit plants and hence as this is non price factor, as shown in fig d. below, supply will shift to left, quantity will shift to left from Q1 to Q2 and prices will up from P1 too P2.