Question

A surge in cocoa prices is ____ and a pest attack on the cocoa crop is ____.

1) beneficial, beneficial
2) beneficial, detrimental
3) detrimental, beneficial
4) detrimental, detrimental

Answer 1

A drought decreases the supply of cocoa and increases the price, while a new study demonstrating health benefits increases the demand and price of cocoa.

Step-by-step explanation:

When countries producing cocoa experience a drought, there is a decreased supply of cocoa in the market. This leads to a decrease in the quantity bought and sold and an increase in the price of cocoa. On the other hand, when a new study demonstrates the health benefits of cocoa, there is an increased demand for cocoa, resulting in an increase in the quantity bought and sold and an increase in the price of cocoa.

If we were to illustrate this on a demand and supply graph, we would see that the demand curve shifts to the right due to the increased demand from the new study, causing the equilibrium price and quantity to increase. At the same time, the supply curve shifts to the left due to the decreased supply from the drought, resulting in a higher equilibrium price and a lower equilibrium quantity.