Question

Suppose that the price of Hershey’s chocolate, a competitor of Godiva chocolate, increases. What would happen to equilibrium price and quantity in the market for Godiva chocolate? Draw the graph that illustrates your answer.

Answer 1

A drought will decrease the supply of cocoa and a health benefits study will increase the demand for cocoa, resulting in an increase in equilibrium price and an uncertain change in equilibrium quantity bought and sold.

Step-by-step explanation:

If countries producing cocoa experience a drought, it would lead to a decrease in the supply of cocoa. This would result in a shift in the supply curve to the left. Additionally, if a new study is released demonstrating the health benefits of cocoa, it would increase the demand for cocoa. This would result in a shift in the demand curve to the right.

With the decrease in supply and increase in demand, the equilibrium price of cocoa would increase, and the equilibrium quantity bought and sold would depend on the relative magnitudes of the shifts in supply and demand.

A demand and supply graph would show the original equilibrium price and quantity, the shift in the supply curve to the left, the shift in the demand curve to the right, and the new equilibrium price and quantity.