1. Using demand and supply model and assuming that lemons are sold in a perfectly competitive market, explain the reasons for the price of lemon to skyrocket. Please make sure you clearly explain the equilibrating process. [5 marks]2. Clearly explain and illustrate the impact of the increase in price of lemon on a substitutegood for lemon. In your discussion provide an example and explain the equilibrating processand the impact on market equilibrium price and quantity of the substitute good. [5 marks]
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Lemon shortage and high demand for
fresh fruit sends prices skyrocketing
ABC Rural
By Jessica Schremmer 11 January 2019 at 5:56 am
Summertime means seafood and cocktails with fresh lemon for many across
Australia, but prices for the fruit have skyrocketed.
A shortage of Australian-grown lemons has caused supplies to fall and prices to spike.
The normal retail price is about $3.99 to $4.99 per kilo but as most lemons currently
have to be imported, the fruit is selling for as much as $8.99 per kilo on supermarket
shelves.
Citrus Australia chairman Ben Cant said the market was known to tighten during
summer but the weak Australian dollar was also contributing to soaring prices.
“In the Christmas period we run predominately on imports,” Mr Cant said.
“A large degree of the fruit this year has been brought in from the
United States and it’s a higher procurement cost for the importers.”
In the past, they brought in a higher degree of Spanish and Egyptian lemons, which
has been cheaper, but they’ve had some quality issues, with mouldy fruit in the
boxes.
“So I think that from my discussions, the safe bet is to buy the US fruits, spend a bit
more money and get a good product.”
Extreme heat reduces Australia’s production
volumes
Sunlands citrus grower Mark Doecke in South Australia’s Riverland said the lemon
shortage was simply a problem of supply and last year’s extreme heat affecting the
fruit.
“Lemon sales have grown a little bit, there is a bit of extra demand, but supply is the
problem,” Mr Doecke said.
“We are in a minor picking time, and last year in February-March, when
the fruit should have set, what we would be picking now, they didn’t
set well.”
He said the extreme heat last February was one of the major causes for the fruit not
to set, resulting in less fruit produced.
“Consequently, we have a very short supply of lemons at the moment and that’s why
the prices are high in the supermarket,” Mr Doecke said.
He said most lemons in South Australia were picked in July and August but they
picked up to five times a year, including at minor picking times.
Mr Cant said lemon consumption was increasing and traditionally, Christmas was a
high-demand period.”
Unfortunately this is just the time of the year, due to mother nature,
where we can’t produce enough lemons,” he said.
“Lemon trees yield most of their crop in winter, so high availability is through March
to October.”
Prices expected to fall, more trees being
planted
Marketing and business development manager for SA Produce Market Nadia Boscaini
said they were currently selling lemons from the Adelaide Hills but were expecting to
see prices fall when ample supplies from Queensland came onto the market.
Mr Cant said Queensland lemon growers would start picking in February and once
the fruit came onto the market, prices were expected to drop immediately.
And with lemon consumption increasing, so is production across Australia.
Mr Doecke said across the southern growing region in the past three years farmers
had seen about a 30 per cent increase in the area planted with lemon trees.”
There are a lot of lemons that have gone in so as they come into production, supply
will meet demand in the future,” he said.
https://www.abc.net.au/news/rural/2019-01-11/lemon-shortage-high-demand-send
s-prices-soaring/107060
Please read the article attached and answer
the questions:
1. Using demand and supply model and assuming that lemons are sold in
a perfectly competitive market, explain the reasons for the price of
lemon to skyrocket. Please make sure you clearly explain the
equilibrating process. [5 marks]
2. Clearly explain and illustrate the impact of the increase in price of
lemon on a substitutegood for lemon. In your discussion provide an
example and explain the equilibrating processand the impact on market
equilibrium price and quantity of the substitute good. [5 marks]

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