Answer to Question #300089 in Microeconomics for OluwaJoy

Question

Explain with the aid of a diagram the effect on the price of cocoa on an increase in the demand for beverages

Answer 1

Explain with the aid of a diagram the effect of the price of cocoa on an increase in the demand for beverages

The link between supply and demand is significant because it determines the pricing and quantities of most goods and services accessible in a market.

When the demand for beverages increases, there is increased demand for cocoa which is an ingredient used to make beverages. This causes a reduced supply of cocoa in the market. When the quantity of cocoa is lower in the market, its prices increases.

This is shown in the graph below:

When the demand for beverages increases, the quantity of cocoa is consequently reduced in the market.

When the quantity of cocoa in the market reduces from Q₂ to Q₁ the price rise from P₂ to P₁.