Debt Crisis of Cocoa
By: meilimeimei • March 1, 2018 • Case Study • 6,477 Words (26 Pages) • 1,043 Views
TABLE OF CONTENT
- Individual Assignment (Part A) ………………………………………………………………. 2-3
- Question 1………………………………………………………………….. 4-7
- Question 2 ………………………………………………………………… 8-12
- References ……………………………………………………………………………………………… 13
Question 1
From the article that given, we can know that Europe is now suffering for the sovereign debt crisis into cocoa and it also casualty for the price of cocoa. Besides that, according to the sovereign debt crisis of cocoa, it affected the demand of cocoa because Europe is the largest consumer of cocoa. Next, Keith Flurry mentioned that the fell in cocoa consumption in Europe and US is because of the previous financial crisis in 2008 and so, the price of cocoa fell in 2011.In conclusion, the fall of consumption cause to decrease the demand of cocoa.
Demand and supply diagram of the price for cocoa shown as below.
Price of Cocoa [pic 1][pic 2]
S [pic 3][pic 4][pic 5][pic 6][pic 7][pic 8][pic 9][pic 10][pic 11][pic 12][pic 13]
P1 E1
P2 E2
D1
D2
Quantity Of Cocoa
Q2 Q1
Decrease In Demand
As the graph show above, it show the fall of consumption and recession the demand of cocoa decreased. In the graph it show point E1 is the equilibrium point which demand curve and supply curve meet each other , and the price is P1 when the quantity of cocoa is Q1.Besides that, another equilibrium point name E2 and it located with the price of P2 and quantity of cocoa at Q2. Demand curve will shift to left from D1 to D2 when there is a decrease in demand of cocoa. When the demand of cocoa is decreased, the price and quantity of cocoa decrease too.
Diagram of when the supply of cocoa increased due to good harvest in Ivory Coast
Price of Cocoa S1[pic 14][pic 15]
[pic 16][pic 17][pic 18]
P1 E1 S2 [pic 19][pic 20][pic 21][pic 22]
P2 E2 [pic 23][pic 24][pic 25]
[pic 26]
Q1 Q2 Quantity of Cocoa
Increase in Supply
As the graph shown, because of good harvest in Ivory Coast, so that it effected the increase of supply. Demand curve and supply curve meet at E1 which is name equilibrium point. The price is at P1 and the quantity of cocoa is Q1 when they are at point E1. When price is at P2 and the quantity of cocoa is at Q2 the equilibrium point at E2. When supply increased, the supply curve shifted to right from S1 to S2. Lastly, when supply increased because of good harvest in Ivory Coast, price will decrease because supply become more and the quantity of cocoa will increase too.
Price elasticity of demand measures how much quantity demanded responds to a change in price. The formula of price elasticity is :
Price elasticity of supply = [pic 27]
The elasticity of supply measures the responsiveness of the quantity supplied to a change in the price of a good when all other influences remain the same.
The different between elastic supply and inelastic supply.
Elastic supply
Price of Cocoa[pic 28]
P2 S [pic 29][pic 30][pic 31][pic 32][pic 33]
[pic 34][pic 35][pic 36]
P1[pic 37][pic 38]
Q1 Q2 Quantity of Cocoa
- Price Elasticity of supply > 1
Inelastic Supply
Price of Cocoa[pic 39][pic 40]
P1 S [pic 41][pic 42][pic 43][pic 44]
P2[pic 45][pic 46][pic 47]
[pic 48][pic 49]
Q1 Q2 Quantity of Cocoa
- Price Elasticity of Supply <1
Different between elasticity supply and inelastic supply.
- When is elastic supply, price elasticity of supply more than 1. Price of cocoa will rises by 10% and the quantity of cocoa will rises more than 10%.
- When is inelastic supply, price elasticity of supply small than 1. Price of cocoa will rises by 10%, and quantity of cocoa rises less than 10%.
Besides that, the factors influence the elasticity of supply are resources substitution possibilities, time factor and storage possibilities. Resources substitution possibilities is the easier to substitute among the resources used to produce goods or services, the greater is its elasticity of supply. Supply is elastic in long run when in time frame. Besides that, the supply of a storable good is highly elastic. Whereby, agricultural products are inelastic, and manufacturing products are storable goods are elastic.
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