Now It’s Chocolate
First we had a hedge fund trying to corner the cocoa bean market. Then came political turmoil in the world’s leading cocoa producer, the Ivory Coast. The result was the price of cocoa beans touching a 32-year high. Combine that with the rising price of sugar and you get either a smaller chocolate bar or one that is more expensive.
The Economic Lesson
For certain items, we buy much less when price rises and much more when it falls. At other times, our quantity demanded remains relatively stable, no matter where price goes.
How we respond to a price change is called our price elasticity of demand. More technically, demand elasticity compares the proportional change in quantity demanded to the proportional change in price. We tend to display much greater demand elasticity for luxury goods than for necessities.
Is chocolate a necessity?