In 2015, cocoa prices rose 13 percent from the previous year, the fourth straight year in which prices increased. However, by the end of 2016 cocoa prices fell. Edward George, the head of research at Ecobank, commented, “Everyone’s like, wow. There’s a lot of cocoa out there.” Much of the world’s supply of cocoa beans is grown in West Africa.

a. Assume that the market for cocoa beans is perfectly competitive and was in long-run equilibrium in 2012. Draw two graphs: one showing the world market for cocoa beans and one showing the market for the cocoa beans grown by a representative farmer.

b. Assume that there was an increase in the worldwide demand for chocolate in 2013. In the graphs you drew in part (a), show the short-run effect of the demand increase.

c. Explain why the supply of cocoa beans increased and the price decreased in 2016. Show the effect of this increase in supply on the graphs you drew in part (b).