WHAT ARE THE PROS AND CONS OF SUCH A POLICY?

25 May WHAT ARE THE PROS AND CONS OF SUCH A POLICY?

Posted at 09:33h in Essay Writing Services by solutions

Orange boom forces price slash Wendy Hargreaves, Sunday Herald Sun, June 19 2011

A GLUT oflocally grown navel oranges is forcing retailers to slash prices to less than $2 a kilogram as citrus growers struggle to sell their biggest crop in 10 years.
Drenching summer rains and mildertemperatures in the Sunraysia, Riverina and Riverland regions have produced the massive harvest – 70,000 tonnes more than last year, taking the haul to 250,000 tonnes.

And orange prices are expected to stay low forthe rest ofthe year, as export markets

collapse underthe strong Australian dollar.

Growers usually export about half ofthe local orange crop, but they cannot compete with

cheaperfruit from South Africa and Chile. This means even more top-quality fruit at low proces in local supermarkets.
Citrus Australia spokesman Andrew Harty expects many farmers will be forced to plough smallerfruit back into the ground.

But he said it was good news for consumers.

The oranges are very high quality, there are plenty ofthem and the prices will be very reasonable,” Mr Harty said.
There certainly wont be any shortage of oranges from now until the end ofthe year.”

Mr Harty said valencia orange crops were also expected to

boom later this season, jumping 70,000 tonnes to 230,000 tonnes.

But while the rainy, mild weather created an unseasonably big crop, Mr

Harty said the downside was the size ofthe fruit – much smallerthan in warmer years and anotherfactor in making them harderto sell.
Mr Harty urged consumers to try the smaller oranges because this year’s crop was particularly juicy and sweet.

Compared with banana prices inflated to about $14 a kilogram because of Queensland’s Cyclone Yasi – local oranges become a bargain.
Answer the following questions using appropriate diagrams. Be sure to explain your answers thoroughly:

1.Assuming oranges operate in perfectly competitive market, use a well-labelled demand and supply model to explain how market equilibrium price of oranges is determined.
2.Using the same model, explain and illustrate the factor(s) that have caused the price of oranges to fall. Be sure to fully describe the equilibrating process.
3.Do you think the demand for oranges is price elastic or price inelastic? Explain your answer based on

the determinants of price elasticity of demand.

4.Based on the elasticity established in your answer above, discuss the likely impact ofthis fall in price on orange produces’total revenue.
5.Using appropriate diagram(s), outline the impact ofa price support scheme if it was introduced by the government to assist the suppliers in sustaining the price of oranges? What are the pros and cons of such a policy?

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