The article ¡§Pain at checkout as WA bananas go east¡¨ by Regina Titelius and Jennifer Eliot states that in the wake of cyclone Larry¡¦s unforgiving wrath on Queensland, banana prices have soared throughout the nation over the last month and are expected to rise even more following WA¡¦s wholesaler Mercer Mooney declared that Carnarvon bananas would be shipped east. Following cyclone Larry¡¦s destruction on Queensland, it has wiped out about 80 per cent of Australia¡¦s bananas destroying fruit worth $300 million, thus leaving Australia to possibly face a 3 year shortage as Queensland¡¦s banana industry slowly recovers from the damages. However, to really see the full impact of the cyclone on banana prices and the effect on society¡¦s
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As mentioned before, producer surplus is also affected by the rising price of bananas. However, the overall effect of increased banana prices on producer surplus depends on elasticity. If the banana market was relatively inelastic, the demand for bananas wouldn¡¦t change dramatically and hence producer surplus would increase slightly as a result in an increase in banana prices. However if the banana market was elastic, then the majority of consumers would respond to the price increase by moving away from the market and hence producer surplus would decrease even with increased prices. Figure 5a and 5b respectively illustrates the before and after changes of the banana markets where bananas are inelastic.
Figure 5a Producer surplus before cyclone Figure 5b Producer surplus after cyclone
(inelastic market) (inelastic market)
From figure 5a we can see that the original producer surplus before the cyclone was $2.50 while in figure 5b the producer surplus has increased to $4.50. This can be explained due to the fact that bananas are an agricultural good with no good substitute in the market and although there would be a slight decrease in the purchasing of the good, overall, people would still buy bananas.