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(labeled D2 in fig 1.2) Chocolate is a normal good which means that the demand for it varies directly with income. Cocoa is a resource used for the production of chocolate. As the worldwide supply of cocoa increases due to the bumper harvest in Brazil, the resource price for cocoa decreases. This changes the supply determinant of “resource price†and causes an increase in supply and a rightward shift of the supply curve...
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As the worldwide supply of cocoa increases due to the bumper harvest in Brazil, the resource price for cocoa decreases. This changes the supply determinant of “resource price†and causes an increase in supply and a rightward shift of the supply curve. (labeled S2 in fig 1.2) Situations such as this one in which there is a change in both demand and supply are called complex cases...
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