Cocoa Literature Review

1876 Words8 Pages
LITERATURE REVIEW The review of the literature is divided into three sections namely the theoretical review, the empirical review and the historical review of cocoa prices, production and real since the 1990 and 2015 season. 2.1 Theoretical review 2.1.1 General Price determination The price of a cocoa is determined on the basis of the world demand for cocoa and the available supply of cocoa. The price of cocoa beans changes according to the market perception of world supply (i.e. what quantity of cocoa beans the market believes are harvested) and world demand (i.e. what quantity is needed by manufacturers of cocoa products). The price of cocoa is determined through the interaction of the broad forces of world demand for cocoa by cocoa processing…show more content…
The concept of price is central to microeconomics and it is one of the most important variables in resource allocation theory; Lipsey and Chrystal, (1999). The price system has two important functions. It rations scarce output among competing users; and prices also determine how productive resources are allocated Lipsey and Chrystal, (1992). Rationing of goods and services occurs because of the scarcity. This operates to differentiate between those “willing and able to buy from those who are able and are no longer willing to buy” Lipsey and Chrystal, (1999). Finally, the allocation of resources is based on willingness and ability of consumers and suppliers to pay and sell respectively. Demand and supply is not only constrained by income and wealth but also based on the individual and market preferences. 2.1.2 Price Floor Determination and Support…show more content…
The supply of the commodity depends on the lagged supply, lagged price and policy variables. Demand is dependent on lagged demand, own price, prices of one or more substitute commodities, level of economic activity and technical factors. Lagged price and changes in inventory can also be used to explain the price. Since the supply process normally uses the general class of distributed lag functions so the lagged price variables are included. The market model is closed using an identity which equates quantity supplied minus quantity

More about Cocoa Literature Review

Open Document