1) Starting from a market in equilibrium, explain how the shortage of cocoa beans came

about using supply and demand curves. Describe how the equilibrium price and quantity
change from the initial equilibrium. 2) How would the development of the CCN-51 hybrid by
Homerito Castro help this situation? Why did it not help the market initially? Again – your
explanation should involve supply and demand curves.

Graph 1 (Before 1921, Cocoa Beans) →→ Graph 2 (Post 1921 Witches’ Broom)
Initially, as depicted by the graph, the market is in equilibrium for cocoa beans due to
demand for cocoa beans equalling supply and therefore resulting in a free market
equilibrium that is based on price mechanism. However, the introduction of a mass disease
in cocoa trees by the name of witches’ broom in 1921 reduces the overall production of
cocoa beans and therefore shifts the supply curve leftwards due to producers physically
being unable to produce more cocoa beans at any price level. As a consequence of the
disease, the factors of production remain the same however total output of cocoa beans
decrease resulting in demand exceeding supply and leading to a shortage in the long-term
and short-term supply of cocoa beans. Furthermore, the contraction in supply causes market
equilibrium to change to e2 as shown in graph 2 due to supply being unable to meet
previous demand and having to increase prices in order to avoid incurring a loss. As
highlighted by the third graph, supply of cocoa beans becomes more inelastic because
regardless of price, firms cannot produce any more cocoa due to the factors of production
remaining constant and external shocks to supply; due to low barriers of exit and entry,
many suppliers exited the cocoa bean market and opted to produce and supply sugar and
bananas which further reduced elasticity of supply of cocoa beans and also lead to the
supply curve shifting backwards. As opportunity cost to produce cocoa increased, suppliers
chose to supply other goods- supplying substitutes like bananas.
Development of CCN-51 by Homero Castro, despite increasing supply in the long-run,
triggered demand to contract and shift backwards due to the inferior quality of cocoa the
plant produced. In spite of CCN-51 shifting the supply of cocoa rightwards due to the plant
increasing the total output of cocoa (the cross-bred new strain of cocoa plant was the
aftermath of a change in factor of production), it shifted the demand curve backwards due to
its inferiority in taste. Additionally, CCN-51 took 12 years to develop, which meant that over
the period of 12 years there was a shortage and due to the initial decreased demand for
CCN-51, it was supplied in large quantities hence the market equilibrium was at e4.
Graph 4- Effect of CCN-51 on the cocoa bean market. However, due to companies
evaluating CCN-51 to have lower opportunity costs, the demand for CCN-51 shifted
rightwards and therefore market equilibrium shifted to e2. In addition, CCN-51 proved to be a
direct substitute for the old cocoa beans hence the shift in supply and demand outwards. In
conclusion, CCN-51 is a good alternative to the old cocoa beans and it also resolves the

problem regarding the scarcity of cocoa beans due to its increased output capabilities as
shown by graph 5.