Case Study 1
The Price of Coffee
Baker College Auburn Hills
“Coffee Demand Shifts Down”
In a recent article published by Wall Street Journal by Leslie Josephs “Coffee Demand Shifts Down- Market” explains the demand for coffee and its contrasts between Robusta and Arabica beans. The price of Robusta coffee beans are up 13% and still available to the price conscious consumers. This does not include U.S. and Europe who primarily use Arabica beans, which have gone down 37% because of our indifferent economic growth.
The price gap between both beans are around 45 cents which is at a lowest since 2009 (Josephs, 2013 ). This all breaks down to a shift in demand for Arabica coffee beans. Most big name franchises such as Starbucks only uses Arabica beans, even in parts of the world that grow Robusta beans locally. Stockpiles of Arabica beans has grown 72% indicating a demand, where inventories for Robusta have decrease 55% in the same period (Josephs, 2013 ).
Coffee is a natural resource that can be easily damaged, in 2000 there was a shortage of Arabica beans forcing companies to use Robusta. “The international coffee organization forecasts that demand for Robusta coffee beans will grow 6% annually through 2015 (Josephs, 2013 ). This will narrow the gap in coffee price. There is a shift and when people become more price conscious they are going to choose the price versus the taste.
I love coffee and I am one of those people who would pay extra money for Arabica bean coffee. If the demand for Robusta keeps increasing then this will increase the supply. At the same time Arabica will be forced to lower their prices tapering the gap between the two, finding a market equilibrium. If you put the supply curve and the demand curve on the same diagram and where the two curves cross will indicate price equilibrium. If the price changes for either Arabica or Robusta beans then this would cause a supply movement not a shift. In the case of demand...
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