Chocolate Lovers Fret over Ivory Cocoa Woes

Political unrest overseas threatens to disrupt the supply of America’s sweetest temptations.

Fighting on the Ivory Coast, which supplies 45 percent of the world’s cocoa, has sent cocoa prices soaring Just as the harvest season begins. And unless peacekeepers can bring order, chocolatc prices could soar as well.

“There is hope that international pressure will quell the fighting,” said Ann Prendergast, an analyst with Refco, a commodities trading company in New York. If it doesn’t, it’s going to be just horrible and there won’t be much cocoa coming out of the “Ivory Coast.”

The most’ recent troubles began last week when Ivory Coast government forces attacked the rebel held towns in the northern part of the country. That was followed by air strikes on a French camp that killed nine soldiers and an American civilian. Cocoa prices rose 9.7 percent, the steepest increase in five years.

The surge could affect high end chocolate makers who rely on the prime cocoa butter produced by the Ivory Coast, said Prendergast. How much of an effect depends on peace efforts and the farmers.

As the price goes up, farmers have motivation to do anything they can to get their product to the market, said Prendergast.

you go to a store to buy something, you are contributing to the demand for that item. Whenever you look for a job, you are contributing to the supply of labor services. Because supply and demand are such pervasive economic phenomena, the model of supply and demand is a powerful tool for  nalysis. We will be using this model repeatedly in the following chapters.

One of the Ten Principles of Economics discussed in Chapter 1 is that markets are usually a good way to organize economic activity. Although it is still too early to judge whether market outcomes are good or bad, in this chapter we have begun to see how markets work. In any economic system, scarce resources have to be allocated among competing uses. Market economies harness the forces of supply and demand to serve that end. Supply and demand together determine the pnces of the economy’s many different goods and services; prices in turn are the signals that guide the allocation of resources.

For example, consider the allocation of beachfront land. Because the amount of this land is limited, not everyone can enjoy the luxury of living by the beach. Who gets this resource? The answer is whoever is willing and able to pay the price. The price of beachfront land adjusts until the quantity of land demanded exactly balances the quantity supplied. Thus, in market economies, prices are the mechanism for rationing scarce resources.

Similarly, prices determine who produces each good and how much is produced. For instance, consider farming. Because we need food to survive, it is crucial that some people work on farms. What determines who is a farmer and who is not? In a free society, there is no government planning agency making this decision and ensuring an adequate supply of food. Instead, the allocation of workers to farms is based on the job decisions of millions of workers. This decentralized system works well because these decisions depend on prices. The prices of food and the wages of farm workers (the price of their labor) adjust to ensure that enough people choose to be farmers.

If a person had never seen a market economy in action, the whole idea might seem preposterous. Economies are large groups of people engaged in many interdependent activities. What prevents decentralized decision making from degenerating into chaos? What coordinates the actions of the millions of people with their varying abilities and desires? What ensures that what needs to get done does in fact get done? The answer, in a word, is prices. If market economies are guided by an invisible hand, as Adam Smith famously suggested, then the price system is the baton that the invisible hand uses to conduct the economic orchestra .

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