Supply and Demand, Markets, Prices and Price Setting

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Supply and Demand, Markets, Prices and Price Setting
Cirilo "Lee" E. Montano
Trident University
Microeconomics
ECO201
Allison Kaminaga, Ph.D.
December 10, 2012
Explain what happens to price and quantity of coffee when the following events occur: 1. An advertising campaign highlights scientific studies that find drinking coffee can help reduce weight gain.    a. What do you think would happen?

People will buy more coffee, drink more coffee, and research what coffee will help them lose more weight. Case in point, does espresso assist in more weight loss then normal coffee? Espresso contains more caffeine, so the thought process might be, that you can lose more weight by drinking espresso than you would drinking your everyday run of the mill ground up coffee. Coffee will begin to go up in price because the demand is greater. What about coffee makers and espresso machines? Will people begin to purchase a newer model? Will their standard 5 cup coffee machine suffice? Will consumers buy espresso machines, if espresso indeed guarantees more weight loss to the consumer? Yes, indeed all the above would happen. Take a look at the Starbuck’s Coffee craze. “In 2008, Americans were willingly paying $3 or more for a cappuccino or a latté, and Starbuck’s had grown to become an international chain, with over 16,000 stores around the world. The change in American consumers’ taste for coffee and the profits raked in by Starbucks lured other companies to get into the game. Retailers such as Seattle’s Best Coffee and Gloria Jean’s Coffees entered the market, and today there are thousands of coffee bars, carts, drive-through, and kiosks in downtowns, malls, and airports all around the country” (Rittenberg and Tregarthen,2009) This faddish coffee from Starbucks is just a strong espresso coffee with steamed milk and flavoring. No real health benefit to it at all. It is actually dangerous. Have you ever bought a Venti Carmel Macchiato and you are walking out of the store not paying attention and you drink instead of sip? Ouch! The whole inside of your mouth is now burned and the breakfast sandwich you bought is now worthless. We pay for this things and everyday and the figures show it. In 1986 Starbucks had four stores in Seattle. The cost to purchase this company was 3.8 million. “In the 3rd quarter of fiscal year 2011, Starbucks made 2.9 billion dollars” (Rittenberg and Tregarthen,2009) According to book “The quantity demanded of a good or service is the quantity buyers are willing and able to buy at a particular price during a particular period, all other things unchanged” (Rittenberg and Tregarthen,2009)). If the demand can be met on extremely long term basis, then the price of coffee will begin to level out, or so the consumer will think. Consumers will eventually get used to the price as they continue to buy coffee. However, if the coffee growers cannot keep up with the demand, then the cost to buy coffee will increase as the supply decreases. So if this was a reality, and weight loss could be achieved through the consumption of coffee. Move over Beethoven, the sky is the limit.

b. Coffee plants from major producing countries are affected by drought. Droughts caused by Mother Nature, or let’s just say civil war because South America always has something going on, can create a lack of supply. “Storms, insect infestations, and drought affect agricultural production and thus the supply of agricultural goods. If something destroys a substantial part of an agricultural crop, the supply curve will shift to the left” (Rittenberg and Tregarthen,2009)

c. The price of tea decreases.
If your losing weight drinking coffee, who will to buy tea? All the tea drinking countries and the southern states would probably still buy tea and love it because it is will be much cheaper because there will be more supply than demand. Since my former mother in law is British and lives by tea every morning, noon and night, I would say those...
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