1. John was discussing the market for cocoa beans with his friend Kim. John said, "Ever since Venezuela announced that its cocoa harvest was its lowest ever in fteen years, the price of cocoa beans has been rising and rising and people are buying more and more. I think the demand for cocoa beans must be upward sloping." Is John's reasoning correct? Explain why or why not. (10 points) 2. Assume Diagram 1 below represents a competitive market. Diagram I Price (dollars) 5 It) IS 20 25 Quantity a. What is the overall market situation at a price of $5? b. What changes in supply and/or demand would cause the equilibrium market price to fall to $2 (list all possibilities)? c. If the government imposed a price ceiling of $3 per unit, how does this change the market situation? d. Suppose the product represented in the graph is a gallon of regular milk. If this were soy milk instead, how do you think the demand curve in this case would change? Explain. (30 points) 3. According to the Australian Wool Innovation, severe drought conditions in Australia contributed to the lowest level of wool production in 50 years. This record low production has driven up prices sharply in Australian wool markets. Meanwhile, the price of raw cotton increased signicantly for the rst time in many years. a. Illustrate this observation with a single supply-demand graph for the Australian wool market and a corresponding single supplydemand for the raw cotton market. b. Indicate on your graph (1) the initial equilibrium before the decrease in the supply of Australian wool and (Z) the nal equilibrium. c. Using arrows on the graphs, indicate any shifts in the demand and supply curves for each market. d. Label your graphs fully and write an explanation of the supply and demand changes in the two products