1. World production of wheat sometimes falls significantly due to extreme weather
conditions, such as droughts. Draw a demand and supply graph to show the
effect of a drought on the price of bread in Australia.
2. Chocolate lovers have been horrified by reports of a pending chocolate
shortage. A recent report has predicted a worldwide chocolate shortage within
the next five years which could cause the price of chocolate to double. The
reasons for this prediction include an increase in diseases and pests affecting
cocoa trees in some countries, such as Indonesia, and wars and instability in
parts of West Africa, together with more secure production and profits for crops
other than cocoa such as coffee and maize. On the demand side, growing
incomes in countries such as China and India is leading to an increase in
demand for chocolate. (Turnbull, 2015)ii
Based on the above discussion, illustrate the following using demand and
supply graphs for each of the below.
a The effect on the supply of cocoa if the diseases and pests affecting the
cocoa tree become worse.
b The effect on the demand curve of cocoa if worldwide chocolate
consumption continues to rise, particularly in countries such as China
and India.
c The effect on the world equilibrium price and quantity of cocoa if cocoa
farmers in Indonesia substitute cocoa production with higher-value crops
such as coffee and maize.
d The effect on the equilibrium price of chocolate if all first-year students
rush out and purchase chocolate for their economics lecturers.
3. Government regulations in Australia on the educational qualifications of those
working in childcare centres require higher levels of formal training than a few
years ago. Suppose that these regulations increase the quality of childcare and
cause the demand for childcare services to increase. At the same time, assume
that complying with the government regulations increases the costs of childcare
businesses. Draw a demand and supply graph to illustrate the effects of these
changes in the market for childcare services. Briefly explain whether the total
quantity of childcare services purchased will increase or decrease as a result
of the regulations.