ECO/212 Principles of Economics
October 11, 2010
Juan Carlos Ginarte
Supply, Demand, and Elasticity Paper
Abstract A look at the cause for shift in the supply and demand of coffee. The shift in the supply and demand mean to equilibrium price and quantity will be answered. Furthermore, what can be used as a substitute for this luxury product. The paper will tell the impact of a substitute on the price of elasticity of coffee.
Coffee is a drink containing caffeine and with a mildly stimulating effect that is made from the ground or processed seeds of a tropical tree. Coffee is considered the second most traded commodity on worldwide markets next to oil. The demand for coffee is predicated on a number of factors. The most important of these are taste, customs, and preferences of the target market, consumers’ income level, the quality of the coffee and the availability of the competitor’s coffee. The above mentioned elements are all important factors to an investor when it comes to pricing the commodity. Possible supply shifters to the supply that could reduce the supply of coffee are problems in technology, (problems caused by the pesticides to protect the beans), a reduction of the firms that produce coffee, increase of substitutes available, or a natural disaster such as too much rain. These factors would cause a shift in the demand curve to the left, thus making a shortage. A shortage would be a demand above what is supplied. When this happens sellers are more likely to increase there prices. When sellers raise their prices there will be an increase in the quantity supplied, (no change in supply), and a reduction in the quantity demanded, (not a change in demand) until a new equilibrium price is achieved There are also supply shifters that could cause coffee to shift to the right. Factor that change the shifters that moves the curve to the...