Supply and demand: Markets, Prices and price setting

Please write a 3-4 page essay that addresses the following questions on the market for coffee. (for this case, keep it simple, don’t worry about different brands, whether it is store bought or prepared at home, etc.)

1. Explain what happens to price and quantity of coffee when the following events occur:

a. A scientific study shows that coffee contains some antioxidants.

b. Coffee plants from major producing countries are affected by drought. (fun fact: a coffee bean is a misnomer for the seed of a coffee plant)

c. The price of donuts increases.

d. In order to protect growers that have better working conditions for workers (referred to as Fair Trade), a price floor on coffee is implemented.

For each event, you must specify how it effects either demand, quantity demanded, supply, or quantity demanded. It is also important to demonstrate how the change will affect the market demand or supply curve. Also, be sure to state any assumption you are making regarding the relationship of the event and coffee.

e.g. Price of tea decrease.

Assume that tea is a substitute to coffee. If tea is cheaper, then the consumer will increase quantity demanded of tea. If consumers buy more tea, then there will be a decreased demand for coffee. This event causes a shift of the demand curve to the left. The shift will cause price and quantity of coffee to decrease.

2. Suppose Mr. Dash drinks 2 cups of coffee everyday no matter what the price. What kind of elasticity does it have?

3. Suppose that when the price of coffee increases by 30%, the percentage change in quantity demanded by consumer is reduced by 10%. Calculate the elasticity.

4. Based on your answer to #3, What happens to total revenue when the price of coffee is increased. Why?

Recall from the powerpoint presentation:

Inelastic goods (goods in which consumers are less responsive to changes in price): e < 1

Elastic goods (goods in which consumers are more responsive to changes in price): e >1

In this course, we use the absolute value of elasticity. It is always a calculated value of -1 due to the law of demand.

Case Assignment Expectations:
Use concepts from the modular background readings as well as any good quality resources you can find from the cyberlibrary or other internet search engines. Pleas be sure to cite all sources within the text and provide a reference list at the end of the paper.

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