Q1. Assume that the market for tomatoes is perfectly competitive. Using an appropriate model (or models) illustrate and explain:
a. How a competitive market arrives at equilibrium? b. Why the price of tomatoes has risen?
Q2. Discuss the factors that affect the price elasticity of demand as they apply to tomatoes and make a suggestion based on your appraisal as to the likely price elasticity coefficient. Conclude your answer with a brief explanation as to how price elasticity influences total revenue in the light of any price change.
Q3. Assuming pure competition, use a market model to explain the purpose and the consequence of a price ceiling on the market for tomatoes. Conclude your analysis with a comment on the likely response of the government after the ceiling has been implemented.
About seven million plants, including about four million tomato seedlings, have been lost after they were poisoned with a herbicide at a Bowen nursery in June. Other affected crops include capsicum, melons and eggplant. Bowen Growers Association spokeswoman Denise Kreymborg said the Bowen region was the largest producer of winter vegetables and the poisoning would affect about 30 to 40 growers in the area. But Ms Kreymborg predicted a price spike around September, when the poisoned crops would have been on the market. "You can expect prices to double or even triple, we don't know for sure,'' she told AAP.
"There's still going to be tomatoes, capsicum, melons, zucchinis and eggplants grown in this area, just not as much.'' The price spike will bring back memories of Cyclone Larry, which devastated most of Australia's banana crops and saw the price of that fruit spiral beyond $10 a kilogram. She said the loss of revenue would be hard to take for growers after a tough 2009 and weak performance in recent months.
"There could quite possibly be growers who are affected in that way,'' she said. "They're not breaking even right now and they probably won't be next month either and then in September, they won't be making any money at all.'' She called on consumers to support growers by buying local produce. "We really need consumers to go and ask where the produce comes from and to buy even one extra tomato to support the industry now so it doesn't fall over.''