Your fruit stall has 100 ripe bananas that must be sold today. Your supply curve is therefore vertical. From past experience, you know that these 100 bananas will all be sold if the price is set at 40 cents per unit.
(a) Draw a supply and demand diagram illustrating the market equilibrium price and quantity.
(b) The demand elasticity is -0.5 at the equilibrium price. But you now discover that 10 of your bananas are rotten and cannot be sold. Draw the new supply curve and calculate the percentage price increase that will be associate with the new equilibrium, on the basis of your knowledge of the demand elasticity.