The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4

-Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce. We can then say that:
A)the Brazilian real has depreciated in value as a consequence of free market fluctuations.
B)the Brazilian real has appreciated in value.
C)gold is now more expensive to purchase in Brazil than it was before.
D)the Brazilian real has been devalued.
E)the Brazilian economy is expected to experience rapid inflation.

Question

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4
 
-Suppose the official gold value of the Brazilian real changes from 527 reals per ounce to 508 reals per ounce. We can then say that:
A)the Brazilian real has depreciated in value as a consequence of free market fluctuations. 
B)the Brazilian real has appreciated in value. 
C)gold is now more expensive to purchase in Brazil than it was before. 
D)the Brazilian real has been devalued. 
E)the Brazilian economy is expected to experience rapid inflation.

Quizplus · Accepted Answer

A decrease in the official gold value of the Brazilian real indicates that the real has appreciated in value. This will lead to an increase in the purchasing power of Brazilian consumers and a decrease in the cost of production for Brazilian firms, which will result in an increase in the supply of cocoa. However, due to an increase in the real value of the Brazilian currency, the demand for cocoa will decrease. This will create a surplus of cocoa leading to a decrease in the price.

The Figure Below Shows the Demand (D) and Supply (S)