Assignment part 1 Cocoa Beans

If you look at the link given Indexmundi (2010) Cocoa Bean Prices – Monthly value commodity=cocoa-beans&months=60http:// commodity=cocoa-beans&months=60 It gives a graph – but 2000 to 2010 – not time period asked for The data below can be used to create a graph in excel easily (see below)

a)Cocoa Bean Prices – January 2006 to September 2010 Source: Indexmundi (2010) Cocoa Bean Prices – Monthly value Accessed 13 October Title – must Have AND Date covered correct Price US $ Per Metric tonne Must have and must be Metric tonnes not value - See question

50 word blurb Something like The diagram shows that with some minor fluctuations (especially in 2008), cocoa prices have risen steadily reaching a peak in January 2010 of $ per metric tonne. They now appear to be on a downward trend, falling to $ in September (it would be nice to have the figures but not vital)

Producers of cocoa beans You were given the following link Information on Producers of cocoa beans ty.html;isessionid=DA F16FDE4 E66B7F3156E63DBE?lang=en&item=66 1&year=2005http:// ty.html;isessionid=DA F16FDE4 E66B7F3156E63DBE?lang=en&item=66 1&year=2005

b) Producers of Cocoa Beans 2005 MTonnes Source: FAO (2010) Accessed 10 September 2010 title

c) Share of main consuming countries Source: UNCTAD (2010) Accessed 10 September 2010

Consumers of cocoa This was given as ocoa/market.htmhttp:// ocoa/market.htm The pie chart was already there.

d) 2 interesting points about the general market shown above - Suggested good answers – need 2: i) Lesser Developed countries produce cocoa and More Developed Countries consume it ii) Dominance of a few suppliers should give power iii) Dominance of USA and Europe gives consumer power

e) 3 major factors affecting cocoa price recently 1.Increased demand due to increased demand for chocolate in rich countries 2.Reduced supply due to poor crops in west Africa (especially Ivory Coast) 3.Increased demand from speculators – especially Anthony Ward. Note this is a demand factor at present – when he releases the cocoa onto the market it will become increased supply.

4 reasons – Demand and Supply Increased demand due to increased demand for chocolate in rich countries Reduced supply Drought in Ivory Coast Cocoa PRICES Arrows show in which direction This factor pushes price DEMAND Increased demand From speculators Especially Anthony Ward SUPPLY DEMAND

Assignment 1 part 2 Answers

Increased demand due to demand for chocolate in rich countries Supply Demand 1 Price Quantity P1 Q1 Demand 2 Demand shifts right Price rises to P2 Quantity rises to Q2 Q2 P2

Reduced supply due to poor crops in West Africa Supply 1 Demand Price Quantity Demand 1 P1 Q1 Q2 P2 Supply 2 Supply shifts left – Price rises to P2 Quantity falls to Q2

Increased speculation Supply Demand 1 Price Quantity P1 Q1 Demand 2 Demand shifts right Price rises to P2 Quantity rises to Q2 Q2 P2

g) Demand Elasticity Demand is price INELASTIC DEMAND –People love chocolate and are addicted. Would need a massive increase in price to stop buying it –Low proportion of household income – so higher price has little impact

h) Supply Elasticity Short run – very price INELASTIC supply Long run – more price ELASTIC supply Why – in long run can plant more cocoa trees Ivory Coast –Short run - Poor crop due to rains spoiling and cannot replant immediately –Long run – could plant more but low investment in cocoa industry –Low prices of cocoa in past have lead to shift to other products – so reduced long term price elasticity of supply

Diagram Supply curve should be steep – inelastic in short run Demand curve should be steep - inelastic

Diagram Demand 1 Supply 1 P1 Q1 Demand Curve shifts to D2 for speculation Demand 2 Demand Curve shifts to D3 for More demand for chocolate Demand 3 Supply curve shifts to S2 For poor crops S2 Q2 P2 Price rises a lot to P2 Quantity rises a bit to Q2 How much price rises Depends on a)Size of shifts b)Elasticity of D & S Re price

Finally Add up the marks on the front Highlight anything you are unsure about Give feedback When you get it back Comment in space marked if you disagree with anything DO NOT CHANGE ANY MARKS DIRECTLY