MicroeconomicsName:Institution:Section One 1. The tea market in Bangaria has had a lot of fluctuations, increasing in price up to $3 and falling below $0.5 per pound, in some instances. The prices were below $0.5 during the period between 1965 and 1971, only managing to rise above the $0.5 mark at one time in the year 1970. From 1972, the prices increased steadily until during the 1975 drought, when they shot up to 1977 to the reach $3 dollar mark, then steadily fell to$1.6 per pound in 1978. They then rose above the $2 mark, only to fall back to $1.5 . The drought in the year 1985 caused a sharp upward shift of the prices from $1.5 $ 2.4 per pound in 1986 when the prices fell again after the drought. In 1987 there was a slight increase but then, prices fell further down to below the $0.5 dollar mark in 1993. The prices then rose in 1993 to $1.6 and later fell below $0.5 per pound in 2002, only to rise again through to 2005. 2. In a competitive market, the demand and supply of the basic consumer goods is affected by the price and the quantity of such goods in the market. If the supply of the goods in the market is reduced, the demand for the commodity goes up. This is because the number of people that require the commodity is much higher than the quantity of the commodity that is in the market to satisfy that demand. The higher the demand for the commodity increases the higher the prices increase as well. If on the contrary, the supply of the goods in the market increases beyond the quantity demanded, the prices fall, since there is enough of the commodity to go around (Lipsey, Chrystal & Lipsey-Chrystal, 2007).All factors constant (Ceteris paribus), the demand and the supply of the tea in the market of the country Bangaria would be the same, creating what is referred to as the equilibrium (as indicated by the black arrow in the line graph simulation below). The idea behind the equilibrium price is that, in a perfectly competitive market, there exists equal number of will and able buyers as there are number of willing and able sellers. In reality there is not such a point as there are a myriad of factors that will always affect the demand and supply o the tea in the market. Such is the case that took place in the years 1975 and 1985, when the country and majority of other places in the world experienced a long period of drought. Since tea production is affected by the weather among other factors, the long prolonged period of dry weather will affect the price o the commodity at the market level. The drought factor upsets the balance at the equilibrium to affect the quantity that can be supplied to the market and thus raising the demand of the tea and ultimately the prices...