Question

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 benefits of cocoa? Illustrate your answer with a demand and supply graph.

Short answer

The supply of coffee will decrease and the price of coffee will increase. As the health benefit is illustrated thus the demand for coffee will increase.

Step-by-step solution

Given Statement

That the country that produces cocoa faces drought but new research illustrates that the coffee is beneficial for health.

Explanation

As the drought has occurred in the cocoa-producing countries that will decrease the supply of cocoa due to which supply of coffee will decrease but as the study states that coffee is beneficial for health that will increase the demand thus the decrease in supply and increase in demand will make an increase in the price of coffee.

Graph Illustration

As shown below when the drought occurs in the cocoa-producing countries then the supply curve shifts from S to S₁due to which price increases from P to P₁but because of new research the coffee is illustrated to be very beneficial for health thus the demand increases for coffee thus the demand curve shifts from D to D₁