http://www.reuters.com/article/2013/09/13/us-cocoa-chocolates-idUSBRE98C0AQ20130913
This article states that since the price of cocoa butter is increasing due to the decrease in supply, the prices of chocolate are increasing.
Since chocolate is made up of two major components, cocoa and cocoa butter, an change in price will affect the product as a whole. In the case of this article, the demand for cocoa butter has increased and so there is a shortage compared to cocoa. Therefore supply is inelastic due to the multiple factors. The decrease in the supply for cocoa butter makes the supply inelastic because there is only a certain amount of cocoa butter that can be purchased at one time. Also, cocoa in general is an agricultural product and so there are certain times of the year when cocoa is harvested. Therefore, there is a certain amount of cocoa that is produced per year meaning that if the demand for cocoa butter increases (like in the case of this article), there is nothing that can be done to magically produce more cocoa butter. In the case of cocoa, it is also a regional agricultural good. While products like wheat and corn can be produced in most parts of the world, cocoa grows best around the tropical areas. Locations near the equator in Africa are known to be the largest suppliers of cocoa (e.g. Ghana). Therefore, although cocoa can be produced at an extremely efficient and large scale, it does not compare to the the large scale production of wheat and corn and possibly rice.
This article states that since the price of cocoa butter is increasing due to the decrease in supply, the prices of chocolate are increasing.
Since chocolate is made up of two major components, cocoa and cocoa butter, an change in price will affect the product as a whole. In the case of this article, the demand for cocoa butter has increased and so there is a shortage compared to cocoa. Therefore supply is inelastic due to the multiple factors. The decrease in the supply for cocoa butter makes the supply inelastic because there is only a certain amount of cocoa butter that can be purchased at one time. Also, cocoa in general is an agricultural product and so there are certain times of the year when cocoa is harvested. Therefore, there is a certain amount of cocoa that is produced per year meaning that if the demand for cocoa butter increases (like in the case of this article), there is nothing that can be done to magically produce more cocoa butter. In the case of cocoa, it is also a regional agricultural good. While products like wheat and corn can be produced in most parts of the world, cocoa grows best around the tropical areas. Locations near the equator in Africa are known to be the largest suppliers of cocoa (e.g. Ghana). Therefore, although cocoa can be produced at an extremely efficient and large scale, it does not compare to the the large scale production of wheat and corn and possibly rice.
This graph representing the supply and demand curves of chocolate shows the supply curve shifting to the left. This is because of the increase in raw materials (cocoa butter). This also shows that there is an increase in price because of the increase of cocoa butter and a decrease in quantity because of the increase in price. The inelastic supply makes any future increase in price proportionately higher than the increase in quantity supplied.
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