Answer to Question #205045 in Microeconomics for Sera Vakaloloma

Question

“It is possible that the price could rise to challenge 2011 levels and move to north of the USD$4000 per ton level."

Cocoa suppliers in Solomon Islands have all but conceded that price levels in 2011, when the price hit USD$3826 per ton, is no longer

possible.

“Those were good times, price was high, so there was a steady local supply of the beans, it was a good time to be in the cocoa

business,” said Harold, a local cocoa supplier who has since left the business.

(i) Explain the linkages between the article and the relevant microeconomic theory. Explain the content of the article to show your

recognition and understanding of the relevant economic concepts, and how its application to the real world.

(ii) With reference to the article, explain the reason for the predicted price of cocoa. Use relevant demand/supply graph to

support your answer.

Answer 1

I.)Using the supply/demand theory. When the prices of cocoa went high the suppliers were willing to supply more in the market since the prices were promising therefore encouraging the suppliers to supply more to the market expecting better returns

ii.)

A movement along a given supply curve is caused by changes in the prices of the cocoa. 

An upward movement is caused by an increase in price while a downward movement is caused by a fall in prices.

▪ A movement from C to D is caused by a rise in price from P₁ (3826)to P₂ (4000)and a movement from D to C is caused by a fall in price from P₁ (3826) to P₂ (4000).

▪ A shift of the supply curve is caused by change in other factors influencing supply other than price of the commodity. A shift of the supply curve can either be to the right or left 

depending on the direction on which a change has taken place. A shift to the right shows an increase in supply while a shift to the left shows a decline in supply