The Côte d'Ivoire and Ghana Cocoa Initiative (CIGHCI) has sought to establish a "cacao OPEC" to secure higher prices for local farmers through export quotas and a Living Income Differential (LID) premium.
Recent reports indicate that while the introduction of the supply restrictions and the LID premium initially succeeded in raising the farmgate price of cocoa, these measures face increasing pressure. High prices have incentivized non-member producers, such as Ecuador and Brazil, to expand their production capacity. Furthermore, global chocolate manufacturers have started substituting West African cocoa with cheaper alternatives where possible, or reducing the size of their products (shrinkflation) to manage rising raw material costs. Economists argue about whether the long-run price elasticity of demand for cocoa makes a permanent supply restriction viable.
| Country/Region | Year 1 | Year 2 | Year 3 (Est.) |
|---|---|---|---|
| Côte d'Ivoire | 43.1% | 40.5% | 38.2% |
| Ghana | 18.2% | 16.1% | 15.0% |
| Ecuador | 7.5% | 9.2% | 10.8% |
| Rest of the World | 31.2% | 34.2% | 36.0% |
After considering Extract E, and the evidence in the data above, would you recommend to the governments of Côte d'Ivoire and Ghana that they continue to restrict the supply of cocoa beans to try to raise the world market price of cocoa? Justify your recommendation.
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.