What happens to the price and the quantity bought and sold...

Key Concepts

Combined Effects on Market Equilibrium

When both a supply shock (due to a drought) and a demand shock (due to improved health perceptions) occur simultaneously, both yield an upward pressure on price. However, their impacts on quantity are conflicting: a decrease in supply tends to lower the quantity traded while an increase in demand tends to raise it, leaving the final change in equilibrium quantity ambiguous depending on the relative strength of each shift.

Demand Shifts

A demand shift happens when non-price factors, such as consumer preferences or new information, influence the quantity of a good demanded. When a study reveals health benefits of cocoa, it increases consumer interest and demand, shifting the demand curve to the right. This rightward shift generally results in a higher equilibrium price and a higher equilibrium quantity, if supply is constant.

Supply and Demand Model

The supply and demand model is a fundamental framework in economics used to determine the market equilibrium price and quantity of a good or service. It involves the interaction of the supply curve, which represents producers’ behavior, and the demand curve, which captures consumers’ behavior, with the intersection of these curves indicating the equilibrium state of the market.

Supply Shifts

A supply shift occurs when an external factor or shock affects the production or availability of a good, independent of its price. For example, a drought in regions where cocoa is produced reduces the supply, shifting the supply curve to the left. This leftward shift typically leads to a higher equilibrium price and a lower equilibrium quantity, assuming demand remains unchanged.

Transcript

00:01 This question says, what happens to the price and the quantity bought and sold in the cocoa market? if countries producing cocoa experience a drought and a new study is released demonstrating the health benefit of cocoa, or to illustrate our answer with a demand and supply curve.

00:17 So, first of all, the combined impact are the droughts in cocoa producing countries and a new study demonstrating the health benefit of cocoa would have on the price and quantity market.

00:30 Is required to be stated right so a drought in cocoa production countries will cause the cocoa production to take a eat obviously so it will cause the supply curve in the cocoa markets to shift leftward so we can say that a drought in cocoa production countries will cost the supply curve in cocoa markets to shift leftwards now the new study demonstrating the health benefit of cocoa now will now positively impact people in preference for koko because it's shown you the other benefits of koko so the demand will increase and therefore the demand call for koko will start to shift right word so the new study demonstrating the health benefits of koko positively impact people's preference for cocoa and the demand curve for cocoa would shift right towards so now to draw the demand and supply curve for cocoa that will look like this and the quantity is here the price is here there we have p1 and we have p2 we have q1 so this is going to go go to q1 which is the quantity and then at this point right here is where the d1 stands and then the d stands right here i'm sorry right there yeah so this is where the d stands and this is d1 and this move upward right here and then the s the supply stands right here and then the s one stands right here so this moves all the way to s1.

03:50 So this is what the demand and supply curve should look like.

03:53 And then we can see that the demand curve moves rightward, right, and the supply curves moves leftward.

04:00 So it's a certain that the price of cocoa will increase...

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