Question

3. Use the supply and demand model to illustrate how each of the following affects the market for cocoa beans, ceteris paribus.

a. A blight on cacao trees kills of much of the crop in Latin America.

b. The price of carob increases.

c. Workers organize into a union and get higher wages for farming Cocoa.

d. Chocolate is clinically proven to prevent Alzheimer’s disease. e. The price cocoa beans are expected to drop in the near future.

Answer 1

3.

Since the equilibirum in the cocoa beans market will be determined by the intersection of demand and supply curve.

a. When a blight on cacao trees kills of much of the crop in Latin America, then the supply of cacao will decrease and the supply curve will shift leftward. Hence the equilibrium price increases and quantity decreases.

b. Since the price of carob increases and carob and cacao beans are substitute goods, so with the increase in the price of carob, the demand for cacao beans increases. Hence the demand of cacao will increase and the demand curve will shift rightward. Hence the equilibrium price increases and quantity also increases.

c.

Since the workers organize into a union and get higher wages for farming Cocoa. Hence higher wages increases the cost of production. Hence firm decreases the output production. Therefore the supply of cacao will decrease and the supply curve will shift leftward. Hence the equilibrium price increases and quantity decreases.

d.

Since it has been found that Chocolate is clinically proven to prevent Alzheimer’s disease. Hence the demand of cacao will increase and the demand curve will shift rightward. Hence the equilibrium price increases and quantity also increases.

e.

Since the price cocoa beans are expected to drop in the near future. Therefore the consumers will start consuming less quantity of cocoa beans in current time. Hence demand of cacao will decrease and the demand curve will shift leftward. Hence the equilibrium price decreases and quantity also decreases.