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Category: Critical Thinking

Subcategory: Economics

Level: College

Pages: 3

Words: 825

Hot Chocolate Demand and Supply
Name
Institutional Affiliation
Question one

Price S
Pe2
Pe1
D2
D1

Qe1 Qe2Quantity
When the weather turns cold, people will take more of hot chocolate to try and stay warm. Therefore, the demand for the hot chocolate will increase from D1 to D2. The equilibrium price will increase from Pe1 to Pe2, while the equilibrium quantity will increase from Qe1 to Qe2. In the short run, the supply will not be affected. It will remain as indicated by the S (supply curve). The immediate effect will be on the demand side of the hot Chocolate. The demand will increase from D1 to D2 as people take more and more of the chocolate to keep warm (Nagashima et al., 2015).
Question two
Price
S
Pe1
Pe2
D1
D2
Qe2 Qe1Quantity
Given tea is a substitute of hot chocolate, a fall in the price of tea will make it relatively cheaper to hot chocolate. Consumers will, therefore, consume more of tea than hot chocolate. This will mean that the demand of hot chocolate will fall from D1 to D2. A fall in the demand of hot chocolate will lead to a fall in the equilibrium price from Pe1 to Pe2, and the equilibrium quantity will reduce from Qe1 to Qe2 (Armstrong & Vickers, 2015).
Question Three
Price
D S1
Pe1 S2

Pe2

Qe1 Qe2 Quantity
Hot Chocolate is made from the cocoa beans. A decrease in the price of cocoa beans will mean that the cost of production has been reduced. Due to the reduction in the cost of producing the hot chocolate, the producers will produce more of the hot chocolate. This, therefore, means that the supply of the hot chocolate will increase from S1 to S2. In the short run, only the supply side will be affected by the reduction in the price of the cocoa beans. This will reduce the Equilibrium price form Pe1 to Pe2, and the due to the reduction in price, the equilibrium quantity will increase from Qe1 to Qe2.
Question Four
Price
S
Pe2
Pe1
D2
D1
Qe1 Qe2Quantity
Whipped cream is consumed a long with hot chocolate. In other words, these two commodities are complementary products. When the price of the whipped cream falls, it will mean that people will consume a lot of it. And given that whipped cream is consumed together with the hot chocolate, the demand of hot chocolate will also increase from D1 to D2. This will make the equilibrium price to increase form Pe1 to Pe2, and the equilibrium quantity will also increase from Qe1 to Qe2 (Claussen, Essling & Kretschmer, 2015).
Question Five

Price
S1
Pe1 S2
Pe2
D
Qe1 Qe2 Quantity
A better method of harvesting cocoa beans would include a reduction in the cost of harvesting and a reduction in wastage of cocoa beans. These two facts will result into a reduction in the price of cocoa beans as well as in an increase in the cocoa beans available for sale. It, therefore will mean that the supply of the hot chocolate will increase from S1 to S2, causing the equilibrium price to fall from Pe1 to Pe2, and equilibrium quantity to increase from Qe1 to Qe2.
Question Six
Price
S

Pe2

Pe1
D1D2
Qe1 Qe2 Quantity
When people get the news from the U.S surgeon that the hot chocolate is helpful bin curing acne, the demand for the hot chocolate will go up. This is because most of those who suffer from acne will start using the hot chocolate, not for pleasure but as a cure. The demand will therefore increase from D1 to D2, causing the equilibrium price to move upwards from Pe1 to Pe2, and equilibrium quantity will increase from Qe1 to Qe2.
Question Seven
Price S2
S1
Pe2
Pe1

D
Qe2 Qe1Quantity
When the farmers strike and dump gallons of milk, this will create a shortage in milk supply and hence the price of milk will go up. Milk being one of the factor inputs in the producing hot chocolate will make the cost of production go up, reducing the supply from S1 to S2. The equilibrium price will move upwards from Pe1 to Pe2, while equilibrium price will reduce from Qe1 to Qe2.
Question Eight
Price

S
Pe1
Pe2
D1
D2
Qe2Qe1Quantity
A fall in the consumers’ income will mean that the consumers’ disposable income is reduced. This will reduce the demand for hot chocolate from D1 to D2. The equilibrium price will reduce from Pe1 to Pe2, while the equilibrium quantity will reduce from Qe1 to Qe2.
Question Nine
Price
S2
S1
Pe2
Pe1
D

Qe2 Qe1Quantity
When the producers expect that the price will increase in the next month, they will reduce that current production so as to save for a higher production next month. This will reduce the supply from S1 to S2, and Increase the equilibrium price from Pe1 to Pe2, and reduce equilibrium quantity from Qe1 to Qe2.
Question Ten
Price
S
Pe1
Pe2
D1
D2
Qe2 Qe1Quantity
If the current price is $0.50 per cup above the equilibrium price, this will cause a decrease in the demand from D1 to D2. Due to this reduction in demand, equilibrium price will fall from Pe1 to Pe2, while equilibrium quantity will fall from Qe1 to Qe2.
Reference
Armstrong, M., & Vickers, J. (2015). Which demand systems can be generated by discrete choice?. Journal of Economic Theory, 158, 293-307.
Claussen, J., Essling, C., & Kretschmer, T. (2015). When less can be more–Setting technology levels in complementary goods markets. Research Policy, 44(2), 328-339.
Nagashima, M., Wehrle, F. T., Kerbache, L., & Lassagne, M. (2015). Impacts of adaptive collaboration on demand forecasting accuracy of different product categories throughout the product life cycle. Supply Chain Management: An International Journal, 20(4).