Applied Business Economics
1. Why is the price of a cup of Starbucks coffee rising?
The price of a cup of Starbucks coffee was rising when the article was written (in 2006) as North America was going through an economic incline; this gave people more money to spend. When people have more money to spend the demand for normal goods (such as Starbucks Coffee) increases. When demand increases the price also increases. The demand increase (and subsequent price increase) can also be explained by an increase in preferences. Starbucks has worked to create a niche market for itself as an “anti-fast food joint”.Starbucks’ branding is to offer each customer an experience with their cup of coffee, not just another transaction. This branding has helped to create a preference with many consumers. They are willing to pay more for a cup of coffee made by a person with care and not a machine. 2. When the price rises, what will happen to the quantity of Starbucks coffee demanded, the demand for Starbucks coffee, the quantity of Starbucks coffee supplied, and the supply of Starbucks coffee? When the price rises the quantity of Starbucks Coffee demanded will decrease as a price increase will cause movement along the demand curve as there was no other influence on buying changed (which would cause a shift in the demand curve). The demand itself would remain stable, as its most likely that people will simply buy less coffee not stop buying it completely(as the price increase was not major) perhaps instead of buying a coffee every day, they would switch to coffee every other day. For some people they will simply buy the same amount of coffee, but stop buying other items. There would of course be some people who will be unwilling to pay the increase prices at all. The law of demand states that the quantity of a food will decrease if the price of the items rises. The quantity of Starbucks coffee supplied would rise if the price increased as the law of supply states...
Please join StudyMode to read the full document