In the article "Economist under fire for banana import suggestion" there is a discussion between Saul Eslake and the Australian Growers industry regarding the importation of bananas in years where a cyclone occurs. Saul argues that Australian consumers could be made better off by allowing imports to occur after cyclones. He writes "Words such as 'greedy', 'grasping' or 'price- gouging', routinely applied to banks, oil companies and airlines, pass nary a lip when it comes to growers... I suppose the difference reflects the fact that when it comes to fruit and vegetables, we are talking about 'our' farmers, who have been 'doing it tough' through drought and now tempest - as opposed to someone else's big, profitable corporations, run by highly paid suits - so that we don't begrudge them the occasional opportunity to indulge in a spot of 'price-gouging'."

The ABGC counters with an argument about biosecurity and the makes the following economic argument: "What Mr. Eslake does not realise is that banana prices are determined by the free market of supply and demand."

Question 9: Continue to assume that the probability of a cyclone in a year is 1/12 and that a cyclone will destroy exactly half of the total amount of domestic bananas produced and that all farmers who enter will grow exactly 12,500 kg of bananas. Using your knowledge from Questions 1-8 briefly, explain what will happen if the Australian government commits to the following policy prior to planting:

After each harvest, the government will count the total number of bananas harvested by Australian producers.

• If the total is above 1,275,000, the government will not allow any imports.
• If the total is below 1,275,000, the government will grant quotas so that the total amount
• supplied to the market is exactly 1,275,000. In explaining your answer, be sure to describe:

1. What happens to the prices of bananas in years with a typhoon and in years without the typhoon?
2. The total change in the consumer surplus in years with a typhoon and in years without a typhoon.
3. The total number of bananas planted in each year.
4. The overall impact of welfare for Australian banana growers.

Based on your analysis, would total welfare (consumer + producer surplus) be better off if we could guarantee that there were no biosecurity risks and imports were allowed?