Satisfying Your Sweet Tooth is About to Get More Expensive

EconEye Admin

3 years ago

Cocoa yields are underwhelming due to crop disease and heavy rains, and compared to last year’s cocoa season, this year’s is showing a reduction in production. In the year through April, chocolate prices went up 14.5% on average compared to the same period the year before.—cnn.com

Answer the following questions to check your understanding of the story.

1) What is happening in the market for cocoa?

In the market for cocoa, ____________.

a) demand is increasing and the price is rising

b) supply is decreasing and the price is rising

c) supply is decreasing by more than demand is increasing, and the price is rising

d) supply is decreasing, which is decreasing demand so price is not changing

Wrong! - The news clip reports crop disease and heavy rains and a reduction in production. Is the supply of cocoa changing? Is the demand for cocoa changing?

That's Right! - Crop disease and heavy rains, which are reducing production are decreasing the supply of cocoa. With the decrease in supply, the price of cocoa rises.

2) How is the chocolate market moving to its new equilibrium?

_____________ creates a shortage. As the price rises _____________ and the shortage is eliminated.

a) An increase in the demand for chocolate; the quantity supplied increases, the quantity demanded decreases

b) A decrease in the supply of chocolate; the demand for chocolate decreases

c) A decrease in the supply of chocolate; the quantity supplied increases, the quantity demanded decreases

d) An increase in the demand for chocolate; the supply of chocolate increases

Wrong! - Cocoa is used to make chocolate, When the price of cocoa rises, does the supply of chocolate change or does the demand for chocolate change? When a shortage arises, how does the market move to its new equilibrium?

Well Done! - A rise in the price of cocoa, which is used to make chocolate, decreases the supply of chocolate. At the original price, the quantity of chocolate demanded exceeds the quantity of chocolate supplied, and a shortage arises. As the price rises, the quantity of chocolate demanded decreases, the quantity of chocolate supplied increases, and the shortage is eliminated.

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