Supply and demand: Markets, Prices and price setting
Case Assignment
Write a 4- to 5-page essay that addresses the following FOUR 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(you do not need to analyze the event itself but rather focus on the effect on supply and demand of coffee):
a. A scientific study shows that coffee helps reduce weight gain.
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 tea decreases.
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.
2. Suppose Mr. Washington drinks 3 cups of coffee every day no matter what the price. What kind of elasticity does it have?
3. Suppose that when the price of coffee increases by 40%, the percentage change in quantity demanded by consumer is reduced by 10%. Calculate the elasticity.
4. Based on your answer to Question 3, What happens to total revenue when the price of coffee is increased. Why?
Assume that donuts are a complement for coffee. If donuts are cheaper, then the consumer will increase quantity demanded of donuts. If consumers buy more donuts, then there will be a increased demand for coffee because it is its complement. This event causes a shift of the demand curve to the right. The shift will cause price and quantity of coffee toincrease.
Write a 2- to 3-page essay on the following issues:
1. Consider what your firm produces. What are some things that would change the demand for your product? Discuss at least two factors.
2. What are some things that would affect changes in supply? Discuss at least two factors.
3. How can quantity demanded be changed?
4. What kind of demand (elastic or inelastic) does the product that your firm produces have?