...words. Below, you will find two scenarios. Your assignment is to discuss the situation by writing the solutions, and then show the solutions and how you got here in one or more graphs or flowcharts. Scenario One Supply and demand are foundational concepts in understanding economic theory. Whether you are a coffee drinker or not, you have been tasked to examine the impact of supply and demand when dealing with the coffee retail industry. A few companies probably come to mind. Pick a major coffee retailer, and then contemplate what has been happening to both the supply and demand for this product. Next, analyze the following scenario that deals with what happened in the coffee industry at the beginning of the last decade: In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers' costs were higher than the market price. The reason this happened was that market prices became high before this, and the supply of coffee increased substantially. In the meantime, demand for coffee and everything else remained the same. Coffee prices, as a supply input, went down. In the meantime, gourmet coffee houses began appearing, which began charging a premium for coffee in the period of decreasing prices. Gourmet coffee houses tend to open in high-rent areas and cater to...
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...words. Below, you will find two scenarios. Your assignment is to discuss the situation by writing the solutions, and then show the solutions and how you got here in one or more graphs or flowcharts. Scenario One Supply and demand are foundational concepts in understanding economic theory. Whether you are a coffee drinker or not, you have been tasked to examine the impact of supply and demand when dealing with the coffee retail industry. A few companies probably come to mind. Pick a major coffee retailer, and then contemplate what has been happening to both the supply and demand for this product. Next, analyze the following scenario that deals with what happened in the coffee industry at the beginning of the last decade: In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers' costs were higher than the market price. The reason this happened was that market prices became high before this, and the supply of coffee increased substantially. In the meantime, demand for coffee and everything else remained the same. Coffee prices, as a supply input, went down. In the meantime, gourmet coffee houses began appearing, which began charging a premium for coffee in the period of decreasing prices. Gourmet coffee houses tend to open in high-rent areas and cater to...
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...CHAPTER 1 The Nature and Scope of Managerial Economics 33 APPENDIX TO CHAPTER 1: THE BASICS OF DEMAND, SUPPLY, AND EQUILIBRIUM In this appendix, we present an overview of the functioning of markets. We begin by reviewing the concepts of market demand and market supply curves and then show how the equilibrium price is determined at their intersection. Afterward, we examine the effect on the equilibrium price resulting from a change in demand and/or supply. This appendix may be skipped by students who remember all of this from their principles of economics course. The Demand Side of the Market Every market has a demand side and a supply side. The demand side can be represented by a market demand curve, which shows the amount of the commodity buyers would like to purchase at different prices. For example, the market demand curve for aluminum in Figure 1-3 shows that 4 million pounds of aluminum would be demanded annually at the price of $1.50 per pound (point A), 6 million pounds would be demanded at the price of $1.00 per pound (point E), and 8 million pounds would be demanded at the price of $0.50 per pound (point B). Note that more aluminum would be demanded annually at lower prices; that is, the demand curve for aluminum slopes downward to the right. This is true for practically all commodities and is referred to as the law of demand. Demand curves are drawn on the assumption that buyers' tastes, buyers' incomes, the number of consumers in the market, and the...
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...CH2 1. Suppose the demand curve for a product is given by Q = 300 – 2P + 4I, where I is average income measured in thousands of dollars. The supply curve is Q = 3P – 50. a. If I = 25, find the market clearing price and quantity for the product. Given I = 25, the demand curve becomes Q = 300 ( 2P + 4(25), or Q = 400 ( 2P. Setting demand equal to supply we can solve for P and then Q: 400 ( 2P = 3P ( 50 P = 90 Q = 220. b. If I = 50, find the market clearing price and quantity for the product. Given I = 50, the demand curve becomes Q = 300 ( 2P + 4(50), or Q = 500 ( 2P. Setting demand equal to supply we can solve for P and then Q: 500 ( 2P = 3P ( 50 P = 110 Q = 280. c. Draw a graph to illustrate your answers. It is easier to draw the demand and supply curves if you first solve for the inverse demand and supply functions, i.e., solve the functions for P. Demand in part (a) is P = 200 ( 0.5Q and supply is P = 16.67 + 0.333Q. These are shown on the graph as Da and S. Equilibrium price and quantity are found at the intersection of these demand and supply curves. When the income level increases in part (b), the demand curve shifts up and to the right. Inverse demand is P = 250 ( 0.5Q and is labeled Db. The intersection of the new demand curve and original supply curve is the new equilibrium point. 2. Consider a competitive market for which the quantities demanded and supplied...
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...Terry Martin ECO/561 April 22, 2014 Eric Hogan Market Equilibration Process Supply and demand is considered one of the most important factors of economics. According to www.ingimayne.com, supply and demand set the price and the amount of a good that will be produced. For instance, if the demand is high the price will less, but when the price is high the demand the demand will be less. In addition, demand is the quantity of a product or service desired by the buyer and supply is how much the market can actually offer. This is also called the supply relationship. In my paper I will explain how the coffee prices rose in 2011 due to the increase demand and reduced coffee supply. In 2010, coffee prices increased more than fifty percent causing the price of coffee to rise tremendously. The short supply of Arabic coffee bean varietals are used for many gourmet coffee, premium coffee, and specialty coffee. They are used by Starbuck’s, Community Coffee, and other major coffee roasters and retailers. With the increase in professionals the demand for premium coffee has increased as well. In Brazil, India, and China this trend is particularly noticeable, placing a huge demand on coffee beans. Starbucks controls about seventy percent of China’s market share in the coffee industry. However, green coffee beans decreased and the higher cost of coffee worked its way to grocery shelves and in coffee houses and cafes across the country as well as the United States. For instance, Starbucks...
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...A System Dynamics Study of Instability in the Colombian Coffee Market by Juan Fernando Perez Velasquez Thesis Submitted in Partial Fulfillment of the Requirements for the Degree of Master of Philosophy in System Dynamics System Dynamics Group Department of Geography University of Bergen 2010 Abstract The coffee market in Colombia is highly unstable, being more unstable in the last 20 years (since the removal of the ICO agreement). During 1980 and 1990 the coffee price was varying around 8% around a mean and over the last 20 years it has been oscillating around 15% to 20% around a mean. The coffee market presents an 8 to 11 years cycle in price and production. Coffee market is well known for its volatility and for the crisis that producers are confronting, i.e., poverty, low prices, etc. The main causes for this crisis are the characteristic behaviors of the coffee market itself, which presents price instability, resource unsustainabillity, and inequity along the commodity chain (specially for coffee growers), the same characteristics of other commodity markets. In this paper we focused on the first of the causes, price instability, and so we created a System Dynamics model of the Colombian coffee sector that captures the structure of that market, the delays and feedbacks present on it. With this research we intended to answer the following questions: Why is the Colombian coffee market so unstable in price and quantity? And what can be done to reduce the instability...
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...Coffee Supply and Demand It was always well known that there is very high demand of gas in United States! After gasoline the next product that is high in trade with other countries is coffee. It grows in more than 55 countries across the world and supports lives of around 23 million people in farming sector. More than 115 million people in the world have their involvement in business of coffee. Growth, process, trade, and retail of coffee are the different stages all these people are involved in. In 2002, people around the world bought 14 million lbs of coffee, while around 17 million lbs was grown. This over production isn’t usual and leads to variation of price in the entire coffee industry. A world wide known firm, Starbucks, is the most popular corporation in today’s market. It is known for controlling a major part of coffee that’s being produced. In fact, Starbucks is the lead corporation in retailing of this product. It offers people a special braded coffee. They start by purchasing, roasting and then finally selling whole coffee beans and rich brewed coffee, espresso drinks, cold-blended drinks, and a variety of fresh made items, equipments, and a wide variety of high-quality teas. They have more than 9000 retail locations worldwide. When people consider coffee, Starbucks has gained a worldwide name by leading with high success. It was mentioned in a news article that Latin America is where Starbucks has been producing huge amounts and quality of coffee for ensuring...
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...in culture. I was interested in the product many in this country love to drink and it is coffee. Coffee is something I do not consume therefore I was interested in the trends and what made coffee so popular. I will be describing what occurs to make the demands of the good and its market and equilibrium prices, assuming the supply remains the same. I will then describe the change that has occurred with the supply of the product and its market and equilibrium prices, assuming demand remains the same. Lastly I will give my opinion on this products demand price if it is elastic or inelastic and what that implies about how consumers respond to changes in the price of the product. Coffee is the second largest commodity on the world followed by petroleum. Why is the demand so high? With the growth of coffee houses and coffee bars their came a shift in the specialty coffees and express coffees. The demand of specialty coffees has grown from 12 percent to 16 percent this year alone and that number is not prejudice to any age group gender or race. The consumption is now soaring again this year based on a growing economy and younger consumers getting into the mix. Supply on the other hand is in a shortfall and is approaching their lowest levels in 11 years. We currently have a big demand and a dwindling supply. There are two factors involved and that is bad weather and commodity speculators. Coffee prices rose in part because Colombia, a major producer of high-end Arabica beans, has had...
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...Overview 3 1.2 Speciality Coffee Industry and Starbucks Coffee Supply Chain 3 1.4 Problem Definition 4 Literature Review 4 2.1 Current Situation of Starbucks and Older Supply Chain Method 4 2.2 Supply Chain Visibility 5 2.5 C.A.F.E (Coffee and Farmer Equity Practices) Practices 6 Findings 7 3.1 Starbucks’ Operations 7 3.1.1. Material Flow 7 3.1.2 Purchasing System 9 Discussion and Analysis 10 4.1 Starbucks’ 3PLs Strategy 10 4.2 Value Change Analysis 10 Conclusion 11 Appendix A 15 Appendix B 16 Appendix C 17 Appendix D 18 Appendix E 19 Appendix F 20 Appendix G 21 Appendix H 22 Appendix I 23 Introduction 1.1 Brief Company Overview Starbucks is the world’s #1 speciality coffee retailer with more than 20,000 stores n 65 countries (See Appendix G). It operates an estimate of 8,800 of its shops, while licensing and franchises operate the remainder of the stores. The company also owns Seattle’s Best Coffee, Torrefazione Italia coffee brands, Teavana, Tazo, Evolution Fresh, and La Boulange (SCC 2014). Starbucks offers consumers various products including: coffee, handcrafted beverages, merchandise, fresh food, and consumer products of coffee and tea and ready-to-drink (RTD) goods (SCC). 1.2 Speciality Coffee Industry and Starbucks Coffee Supply Chain The speciality coffee industry has seen drastic growth with increase in sales between the 1980s and 1990s. A great number of coffee specialists believed that differentiated coffee supported by the speciality...
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...of the supply and demand trend in the industry in order to make critical decisions. On the other hand, a bad economic analysis can also mislead a company to go into a completely opposite way and risking the company to bankruptcy. In this paper, I’m going to use coffee as an example to show how important economic analysis is. Write a Statement of the Problem - Discuss the issues identified and the ramification. Coffee is a brewed beverage with a distinct aroma and flavor, prepared from the roasted seeds of the coffee plant (Mark Pendergrast, 2009). There are more than 54% of Americans who are 18 years and older drinks coffee every day. Coffee has always been a very popular marketable product. However, in 2000, coffee beans are overproduced. This broke the equilibrium between the supply and demand. There were way more coffee beans in the market than what people needed. Thus, it caused the price of the coffee beans to drop dramatically. Farmers in countries such as Angola, Honduras, Sri Lanka, and Zimbabwe even stopped tending their coffee trees in an effort to save on spending for fertilizer and maintenance (Keat 2009). The overproduction not only caused a lot of farmers lost their job, but also ripple affects the coffee production in the next few years. Since the famers were not growing coffee trees anymore, coffee production shrunk a lot in the next few years. This directly caused the coffee bean price to increase. Thus, the equilibrium between the supply and demand is broken...
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...Supply, Demand and Price Elasticity Team H ECO/212 Supply, Demand and Price Elasticity With the economy growing bigger and bigger, all the commodities that people rely on to go about their day to day lives does too. One commodity that people must have even if prices rose or drop is coffee. Team B will discuss the causes for shifts in supply and demand and how the shifts influence price, quantity, and market equilibrium. We will determine if coffee is a necessity or a luxury product, and identify the availability of a substitute. Last the discussion of necessity of coffee and the availability of the substitute and how it impacts the price elasticity. Webster New World Finance (2003) describes coffee as one of the most popular drinks in the world. The coffee bean is not grown in the United States but in tropical climates such as Asia, Africa, and S. America. Multiple causes can affect the shift in supply and demand of coffee. One factor that can affect supply is production surplus of coffee. According to Cruel (2002) Vietnam is almost producing more of the product than the second largest producer for the world, which is Colombia. Calculations from traders’ of the commodity expect it to grow worse as 2003 production of coffee was 10% higher than market absorption Cruel (2002). A second factor that can affect shift in supply and demand is decreased demand in the form of substitution. Energy drinks, colas with caffeine, and even bottled...
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... Next to oil, coffee is the world’s second most traded commodity. Sold in over 50 countries, the farmers who produce coffee are in the millions. Furthermore, there are over 100 million people involved in the growing, producing, trading and retailing of coffee, and over 15 billion pounds of coffee being produced yearly. From a bird’s eye view, the law of supply is working perfectly. Consumption however, is at 13 billion pounds a year. This dispersion in production is why the coffee industry is not the text book example of supply and demand. This dispersion is also the reason for price variations worldwide. The leading retailer of coffee worldwide is Starbucks. Once a small coffee shop in Seattle Washington, Starbucks now purchases, roasts and sells whole bean, brewed, espresso and cold blended coffees, not to mention food and non-food related items which cover their counters in each of the 8,700 retail stores in North America, Latin America and the Middle East as well as the Pacific Rim. This world wide spread of consumers helps Starbucks somewhat control supply and demand. Be as this may, other factors also influence the rise and fall of the supply and demand of coffee. The law of demand provides that as long as price of a product remains low, demand will remain high. Coffee however, seems to distort this fact. The determinant factors which have an effect on the prices of coffee are one of the several reasons why coffee prices and demand remain somewhat...
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...fluctuations you observe to documented supply and demand factors outline in our book. Be sure to cite any references used. Answer: Below is the supply and demand curve that we review when observing gasoline prices going up in the field. Basically under normal conditions we see the equilibrium price being where supply intersects demand at EQ and EP. However, as we experience issues where manufacturers end up not supplying as much fuel as before we see supply shift to the left and this is seen in the supply graph S2. We also see equilibrium price move up because of this from EP to EP1. An example of such an incident occurred during the Katrina Hurricane back in August 2005. The hurricane damaged the 30 oil platforms and the closure of nine refineries. This reduction of oil production reduced the amount of supply of gasoline for the nation. Thus rising the price of gas nationwide. Exercise 2: Chapter 3 Question 14. Assume initially that the demand and supply for premium coffees (one-pound bags) are in equilibrium. Now assume Starbucks introduces the world to premium blends, and so demand rises substantially. Describe what will happen in this market as it moves to a new equilibrium. If a hard freeze eliminates Brazil’s premium coffee crop, what will happen to the price of premium coffee? Answer: Now, initial setup for one-pound bags of premium coffee are at equilibrium. As Starbucks introduces the world to premium blends, the demand curve shifts to the right increasing...
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...The crisis took the form of a decline in coffee prices at world wide levels since 2001.All farmers who grew coffee suffered income losses; especially small farmers in poor and low developed economies like latin America, Asia and Africa. Almost 25 million farmers were hit financially leading to more urgent, negative social consequence. Prices of coffee are based on the composite price index of the International Coffee Organization. It uses prices of two main types of coffee-arabica and robusta. This shows a decline from 141 cents to 52 cents per pound between 1984 to 2003. EQUILIBRIUM / MARKET PRICE FOR COFFEE This is found where the demand curve intersects the supply curve. The equilibrium price occurs at P* and the quantity traded is Q*. What happened in early part of the decade of 2000 was that supply was high but demand was falling. We illustate this on the diagram below CAUSES FOR DEREASE IN DEMAND The main reason for a fall in demand for coffee was the decline in cosumption in USA. This nation consumes 20% ofthe total world coffee. Its per capita consumption of coffee fell from 36 gallons to 17 gallons per person between 1970 and 1990. The rise of alternatives like soft drinks and others like tea can be the cause. However demand was somewhat rescued bythe rise in consumption from UK and other developed nations. CAUSES FOR RISE IN SUPPLY • Brazil and Vietnam are major coffee producers. After the frost years of 1990s Brazilians developed new techniques...
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...of Startbucks Coffee By Trina Howell 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...
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