Assignment: Introduction to Economics

"Avocado prices hit record highs with increased demand and scarce supply" By Lara Webster (from ABC News 20th January 2016) is available at:

Access the article at the URL given above and answer the questions in the spaces below. Use full sentences and show all necessary working but do not use more space than is given here. Other references are not necessary but, if you do use any (for example, online economics glossaries) please list at least the URL of your source. Marks are shown and total.

1. Explain the meaning of equilibrium in a market. What is the equilibrium price of avocados currently?

2. According to the article the demand for avocados has increased, however, the article also states the price of avocados is at record highs and could go as high as $5.00. Explain why this can be so.

3. If the government wished to protect consumers from excessively high prices in the avocado market what could they do?

4. Calculate the annual growth rate of production of avocados over the past 20 years.

5. When considering the price elasticity of demand, are avocados likely to be elastic or inelastic? What reason in the article suggests this?

6. In the article, Mr. Tyas stated "there are a lot of orchards that are going to come into production over the next few years". Show the effect of this on a demand-supply diagram.