Question

2. Not so plain vanilla. Vanilla comes from vanilla beans, which are the seeds of an orchid. The process of extracting (natural) vanilla is very labor intensive and expensive: Every flower has to be fertilized by hand. After harvesting the seed pods, these must be soak in hot water, then wrapped in wool blankets for about 48 hours and finally put in a wooden box to sweat.
There is also a synthetic version of vanilla (vanillin), a single chemical compound which contains the main flavor compound in natural vanilla but is considerably cheaper to produce. In 2007, due to the large supply of synthetic vanilla, prices dropped considerably. As a result, many farmers abandoned their natural vanilla plantations. Nowadays, most natural vanilla is grown in Madagascar, where labor costs are relatively lower.
But artificial flavors gradually fell out of fashion as conscious consumers began to demand organic products. Food companies noticed this trend, and around 2014–2015 Nestle, Hershey and other giants announced that they were shifting to natural ingredients only. This put significant pressure on the natural vanilla market, and suddenly a bag of natural beans cost ten times what it did five years earlier.
For farmers in the coastal towns of Madagascar, the organic product trend has been a tremendous boon. However, in March 2017 a cyclone hit Madagascar, destroying about one third of the crop. This pushed prices even higher.
With prices at these levels, farmers are becoming worried about thieves stealing the precious pods out of the fields. For this reason, they are now harvesting the beans too early. This implies that not only vanilla beans are rare, they are also of sub-optimal quality.
Soaring vanilla prices have had another effect in Madagascar: more and more farmers are planting new orchids. However, it takes four to five years until a new vanilla plantation starts producing.

Based on the above text, using either words or a supply-and-demand graph (or both), analyze how each of the events listed below influenced the market for natural vanilla.

(a) Increase in supply of vanillin

(b) Change in consumer tastes favoring organic products

(c) Nestle and Hershey’s change in production strategy

(d) Madagascar cyclone

(e) Early harvesting of Madagascar beans

(f) New Madagascar plantations

Answer 1

a. Increase in the supply of vanillin will reduce the price of artificially made vanilla and since it is a substitute of natural vanilla , the demand for natural vanilla will shift leftwards when the price of substitute will fall. This will lead to reduction in equilibrium price and equilibrium quantity of vanilla.

tuice OLY x Quantity & Quantity -wit -- LT! Quantity y s Quantity

b. Change in the consumer's preferences towards organic products will increase the demand for natural vanilla and thus shift the demand curve for natural vanilla rightwards to D'D' which leads to increase in equilibrium price and equilibrium quantity of natural vanilla.

c. A change in the production strategy will increase the quantity supplied of natural vanilla at each price level and thus supply curve of natural vanilla will shift rightwards to S'S' and thus at new equilibrium point E2, price level of vanilla has fallen and equilibrium quantity of vanilla has increased.

d. The cyclone will reduce the quantity supplied of vanilla at each price level and thus shift the supply curve of vanilla leftwards to S'S' and at new equilibrium point, price level has increased and equilibrium quantity of vanilla has fallen.

a.