Q1: What will happen to the price of chocolate?
The price of chocolate is definitely likely to soar the imminent years thanks to the production shortage of cocoa plant across the globe .the low production rate caused by poor weather conditions and diseases affecting the cocoa plant tree have hindered the good supply as it was in the previous years. The consumption of chocolate being higher that the production, in the long run, will place it at the state of high demand which will comfortably outstrip the supply, making the prices rise up to 5% higher. (lee Boyce, 2015)
Q2. What does economic theory suggest will happen to the demand side of the chocolate market?
The economic law of supply and demand is one of the formidable principles of an economy which envisage that an increase in supply leads to decrease in the price and that allow price with a high demand leads to increase in the price. (Funk, 2016). Due to the low production of the cocoa product the Chocolate will definitely be in high demand. The analysis of market equilibrium in supply and demand, stipulate that the shortage in the supply of a product ought to have a substantial impact on the demand for the product. The low production will definitely lead to a disequilibrium of the market. The chocolate product being produced being low stipulates that it is below the quantity being demanded by the consumers. The product will be in a higher demand with a low level of affordability by the general public due to increasing price. The increase or decrease in the price of an item affects if a consumer will buy more or less of it. A product will definitely be in demand if the consumer can afford it. The desire without capability to purchase is not a demand and to that extent if chocolate prices shoot up the demand will decrease since its affordability might be low, but a larger factor of rising demand is stipulated to stem from countries that have rapidly increased wealth and risen population such as China and Russia the demands will eventually be up than the supplies can keep up. But ranging from the consumption wild wide the demand should be in a position to decrease due to the increase in price.
Q3. What does economic theory have to say about the supply side of the chocolate market?
Having a low production of cocoa will definitely have an impact on its supply. It is imperative to have products that are offered for sale at a certain price being readily available within the given specific time. The economic theory stipulate that the supply of a product is mostly initiated by change in price. However agricultural products are usually affected by a number of variables which makes it dramatically affected by other factors. For this instance, the poor weather conditions affect the production of cocoa which in the long run makes its availability scarce. The variable at this point will definitely affect the price of the product and affects its market. To this extent, the supply will reduce for chocolate. A large number of population in need of chocolate with the environmental factors will definitely affect the supply of chocolate market. Consumers will also look for other alternatives to chocolate given that it is a non-essential product that should be consumed on a daily basis.
Q4. From the scenario described above, do you think that the demand for chocolate should be considered inelastic or elastic?
The extent by which the quantity of an item changes as the price changes is called the price elasticity of demand. The law indicates that when the price of an item increases the demand will definitely decrease. The demand of an item being sensitive to the price stipulate a high absolute value of elasticity. The elasticity of every product should be able to vary by determination of how essential it is to the consumers. In my opinion products that are considered to be essential will always have a low elastic rate compared to non-essential ones, this is due to the fact that people will still want to buy the essential products than the expensive ones. Chocolate is a non-essential product which means the slightest change in price should have a sharp change in the quantity supplied or in demand. People are most likely to have an option of biscuits, ice cream, and other cookies which are relatively cheaper as to them they consider having an affordable luxury. To that extent I deem chocolate to be elastic as the increase in price will lead to a reduction in the demand from the consumers.
Q5. What would economics suggest is most likely happen to the baking market (e.g. cake making market) as a result of the change in price of chocolate?
Chocolate is widely used to make a variety of products such as candy bars and cake which are basically a tip of an iceberg. Despite the fact consideration that a number of consumers are price insensitive with the chocolate product, economically the trend which is expected with the increase of chocolate price will undeniably affect the banking market of companies using chocolate as a result of the change in chocolate price. The equilibrium of the market will have a high impact on the banking market since the price which will have been supplied will not be at equal bars with the quantity demanded. Remember demand being the quantity that buyers wish to purchase at an affordable price. Economics are highly likely to suggest that the banking market of cakes will face an inflation. The inflation will lead to a rise in the price of shares purchasable in the banks. Due to a decrease in demand for chocolate demand. This will adversely affect the companies due to exposure. The high price is a clear indication of few sales which basically means an increase in interest rates being more on deposits leading to a reduction in the net interest income which will further lead to a reduction of profit on the affected companies.
Funk & Wagmalls New world encyclopedia (2016) Supply and Demand retrieved from http://eds.a.ebscohost.com.ezproxy.umuc.edu/eds/detail/detail?sid=9da60132-36c2-4594-ac5d-d6340faa51cd%40sessionmgr4006&vid=0&hid=4203&bdata=JnNpdGU9ZWRzLWxpdmUmc2NvcGU9c2l0ZQ%3d%3dLee Boyce Forthismoney.co.uk (2015) Price of chocolate could soar in coming years. retrieved from http://www.thisismoney.co.uk/money/bills/article-3359619/Price-chocolate-soar-coming-years-thanks-production-shortages-growing-taste-cocoa-globe.html
Newsletter(2015) Ghana and Indonesias poor Cocoa Production Leads to Global shortage
Retrieved from http://www.indonesia-investments.com/news/todays-headlines/ghana-indonesia-s-poor-cocoa-production-leads-to-global-shortage/item5534
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