Question

Suppose we are analyzing the market for hot chocolate mix, which is used by some people to make hot chocolate drinks. Perform 3 step supply and demand analysis.

a. Winter starts and the weather turns sharply colder. Assume people drink more hot chocolate in colder weather.
b. The price of tea, a substitute for hot chocolate, falls.
c. The price of cocoa beans, an ingredient in hot chocolate mix, decreases.
d. The price of whipped cream, a complement for hot chocolate falls.
e. The Surgeon General of the U.S. announces that hot chocolate cures acne.
f. Protesting farmers dump millions of gallons of milk, causing the price of milk (a complement to hot chocolate mix) to rise.
g. Consumer income falls because of a recession, and hot chocolate is a normal good.
h. Producers expect the price of hot chocolate mix to increase next month, and if they want, they can store hot chocolate mix indefinitely.

Answer 1

In the cocoa market, if countries producing cocoa experience a drought and a new study is released demonstrating the health benefits of cocoa, the price of cocoa is likely to increase and the quantity bought and sold will decrease.

Step-by-step explanation:

In the cocoa market, if countries producing cocoa experience a drought and a new study is released demonstrating the health benefits of cocoa, the price of cocoa is likely to increase and the quantity bought and sold will decrease.

The drought will lead to a decrease in the supply of cocoa, causing the supply curve to shift to the left. This will result in a higher equilibrium price and a lower equilibrium quantity. At the same time, the new study demonstrating the health benefits of cocoa will increase the demand for cocoa, causing the demand curve to shift to the right. However, the decrease in supply is expected to outweigh the increase in demand, leading to a net decrease in the quantity bought and sold and an increase in price.