Answer to Question #327233 in Microeconomics for G2r

Question

You are interested in analyzing the market for cocoa. From your investigation, you were able to find that last year’s price for cocoa was $20 per ton. At this price, 100 million tons were sold on the world market. You were also able to obtain estimates for the own price elasticities of demand and supply on the world markets as −0.25 for demand and 0.5 for supply (using the percentage change formula). 

Assume that cocoa has linear demand and supply curves throughout. 

 

A. Solve for the equations of demand and supply in this market and sketch the demand and supply curves. 

B. Suppose that you discover that the current price of cocoa is $15 per ton and the current level of worldwide sales of cocoa is 150 million tons. The most recent elasticity estimates from the trade association this year are −0.125 for demand and 0.25 for supply. Describe the change in the supply and demand curves over the past year using your diagram from part (A).

C. What sort of event(s) might explain the change?

Answer 1

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