Question 1

(a) Two incidents occurred in the Cameron Highlands which was a major vegetable production area in Malaysia. One was the severe storm that destroyed many vegetable plantations in Cameron Highlands. The other was the crackdown of illegal workers who worked in the vegetable plantations in Cameron Highlands.

Use a suitable market diagram for vegetable in Malaysia, and explain the effects on the equilibrium price and quantity of vegetables if these two incidents occurred concurrently. (10 marks)

(b) A durian retailer estimated the price elasticity of durian to be -3.2 by using the mid-point formula. Calculate the new quantity of durian demanded if the retailer originally sells 140 kg of durians at price of $51 per kg and he now reduces the price to $45 per kg. Discuss the effect on retailer's total revenue if he increases the price of durians. (9 marks)

(c) Consider two goods A and B with income elasticity of demand -2.5 and 0.8 respectively. During a recession where consumers' income generally decreases, both sellers of A and B will earn higher revenue. Do you agree? Explain. (6 marks)