Q1. Why is the price of Starbucks coffee rising? Please explain.
Answer: There are many factors to include when considering the economic reasoning behind Starbucks raising its prices. The company, in their news release stated that their costs are going up including energy and fuel, however there is much more to it than that.
The coffee beans typically used by Starbucks are Arabica beans that are grown mainly in Brazil, Vietnam and Columbia, yet emerging growers on the Ivory Coast and Ethiopia are beginning to experience higher yield crops and quality beans. The rising cost of the green beans is largely due to a decrease in the available supply due to poor crop output which has driven the cost of Arabica beans to a 13 or 14 year high. While more affordable beans like the Robust beans are frequently more in demand causing their prices to rise considerably as well. Another contributing factor is Brazil’s response to higher global pricing for Arabica beans which has been to withhold crops to push the price of beans higher, resulting in supply and demand imbalances.
Add to that the increases in fuel and energy prices and the supply and demand imbalances there, in which inevitability of increases in product prices on a global scale were bound to increase as well. The cost associated with distribution alone could be seen as reason enough for the increase.
Q2. What will happen to the quantity of Starbucks coffee demanded, the quantity of Starbucks coffee supplied, and the supply of Startbucks coffee when the price rises?
Answer: It’s possible that thee demand will decrease for Starbucks coffee as people may choose less expensive coffee’s like Tim Horton’s so the consumer demand will decrease on one hand and potentially increase on the other. The same can be said for the quantity of supplies used and...