Answer to Question #85863 in Microeconomics for Simeone Montrond

Question

An article in the Wall Street Journal described the production of cocoa beans used to make chocolate in African countries such as Ghana and Ivory Coast. The article explained that when prices of cocoa beans rise, it can take two to four years for new trees to produce the pods in which the beans are grown. If the demand for chocolate were to increase, all else equal, would you expect the price of chocolate to be greater after one year or after four years? Use a graph to illustrate your answer.

Answer 1

If the demand for chocolate were to increase, all else equal, we would expect the price of chocolate to be greater after one year, because there will be no change in supply. But in 4 years the supply of chocolate would increase too, so the equilibrium price would decrease.