Supply and demand: Markets, Prices and price setting

Supply and demand: Markets, Prices and price setting

Supply and Demand

Demand is everything that a consumer aims to acquire at any given time. We must understand that it is only the desire to acquire certain well, not the consummation of such, which would be characterized as consumption (Blanchard & Quah, 1990).

Demand can be influenced by several factors such as:

The consumer tastes;

The relationship between the price of the good - the higher, the lower the demand for it;

The ratio of its price to the price of substitute goods. E.g. the price of butter and margarine;

The ratio of its price and the purchasing power of the consumer.

Supply is the amount of goods or services that producers wish to sell the same at any given time (Rittenberg and Tregarthen, 2009). Depends on a few variables:

The quantity supplied of a good;

The price of this good;

The price of competing goods in this;

The cost of production of these goods;

The technology used in the manufacture of these products.

So we can see that the increase is the price of a product, the greater is the stimulus for the production of this good. When the amount of this asset in the market normalizes, there is a reduction of its price, stimulating demand and discouraging the willingness of manufacturers to produce it.

The product in question is the coffee. It is believed that coffee is not a product of basic need (such as water, housing or clothing etc.), but has the distinction of being a product that, once developed and become drink, causes addiction, for which in some cases can become a kind of product of considerable need.

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

A scientific study shows that coffee contains some antioxidants.

In a case where scientific study shows that coffee contains some antioxidants will result in increase in demand from consumers (lower the equilibrium price). It originates excess demand (the quantity demanded will exceed the quantity supplied). This unmet demand allows sellers to raise the price, resulting in increased supply and decreased demand. This process continues until it reaches the equilibrium point. The consumers will want to buy more coffee which will result in producers to sell coffee at high price because of the shortage of coffee and excess of demand. Similarly, producers see that there is excess demand which will increase their prices. Ultimately the performance of market forces (D and S) will increase the price up to achieve the equilibrium level (Reem, 2013).

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)

In a case where coffee plants from major producing countries are affected by drought will result in decreases in supply of coffee and supply curve will shift to left. This change in supply curve will result in increase in price of coffee. The demand for the coffee will stay the same ...