What happens to the price and the quantity bought and sold in the cocoa market if countries producing cocoa experience a drought and a new study is released demonstrating the health benefits of cocoa? Illustrate your answer with a demand and supply graph.

Demand and supply curves show how changes in prices, wages, and rates of return are influenced by economic events. There are just four possibilities: the demand curve may move right or left, or the supply curve may shift right or left, depending on the change in any single event. One such event is a drought and a new research explaining health benefits of cocoa.

The drought is a supply shock that will cut cocoa supplies while the health study will boost demand. Both of these movements will result in increased pricing, but the quantity produced and sold will be affected in opposite ways. There is no way of knowing what will happen to the equilibrium quantity without considering the magnitudes of the effects.

The effects of drought and the new research study are illustrated in the following figure:

As per the above figure, the initial supply was S; initial demand was D; and the initial price was at P. The quantity is at Q. After the economic events, the demand increased and the demand curve has shifted to D' because of which price increased to P'. However, the supply decreased causing the supply curve to shift left to S'. The quantity remains uncertain at point Q.