Activity 2(g)

Activity 2g: A visit to the market to purchase Pink Lady apples


b)  Pe = $2.00 Qt = 70,000 kg p/w

c) Pe = $2.67 Qt = 77,000 kg p/w (this requires either the drawing of really accurate graphs or mathematical equations – there is no explicit point in the table where D = S)

d) The free advertising would have led to @ change in tastes and preferences that resulted in a shift of the demand curve to the right. This would have created @ shortege at the original price of $2.00. Those consumers who realty wanted the apples may have bid up the price, resulting in some dropping out of the market. The higher price may have resulted in an expansion in supply. The price would increase like this until the market cleared.

 e) The new demand and supply schedules become:

Price per KiloDemand per WeekSupply per Week

After the decrease in supply the equilibrium price increases to $3.00 and the apples sold decreases to 70,000(based on second table changes)

f) Predictions

  • This might decrease the supply of apples (unfavourable growing conditions) so price increase and Qt decreases
  • This might decrease demand (increase in the price of a complement). P decrease and Q decrease
  •  Demand might increase (increase in the price of a substitute), P increase and Q increase
  • No direct effect — a bit of a trick question — there is no GST on fresh food. However, if consumers have to allocate more money to the purchase of other goods and services, discretionary income might decrease, resulting in 2 decrease in demand (P decrease, Q decrease)
  • Supply might decrease due to lack of suppliers, Price increase and Quantity increase
  • Temporary decrease in supply due to supply disruption (unable to rent a space while renovations take place). P increase, Q decrease

g) Organic apples have a higher cost of production as they have to use natural fertilisers and pesticides rather than synthetic chemicals to grow the apples. They are also more likely to experience shrinkage due to pests and unfavourable growing conditions. As demand for healthier alternatives increase, this creates shortages
which place upward pressure on prices.

h) Greater competitive pressures at the QVM compared to other retail environments.

i) The sellers will want to make sure that they clear any excess stock because they have limited storage capacity. To attract new customers, they need to lower the price to clear the market at the end of each day (this allows them to sell the fresh products each day that the market opens).