Coffee is a good example of this as there are limited substitutes for coffee, due to customer preferences substitutes such as roasted grain beverages seem to have minimal effect on the demand for coffee. The lack of success of these substitutes is potentially due to there tendency to be caffeine free, this addictive component of coffee tends to keep demand constant. Additionally, the variety of coffee products available such as latte, Americano or an espresso keeps the market open to a wider variety of customers will a variety of preferences, therefore demand for coffee proves inelastic. These factors can be used to explain my value of price elasticity of demand at -0.45%. Furthermore, if the consumer’s income increases they will be able to purchase more of the product. In relation to coffee the income elasticity of demand was at 1.18% therefore if the consumer’s income increases they are highly likely to purchase higher quantities and quality cups of …show more content…
This can be seen from historical data recorded by the ICO on prices paid to growers in exporting countries, increasing from 39.30 US$/lb in 2004 to 67.10US$/lb in 2005 in El Salvador. Additionally, these importing countries can use their knowledge of price elasticity of demand when factor pricing. The inelasticity of coffee means importing countries can pay more for the coffee and still achieve the demand required even if they increase retail price. Income elasticity of demand also is important information for businesses when forecasting supply needed as income will greatly effect the demand. As income elasticity of demand for coffee is greater than 1 businesses can research into predicted financial situations and use this to determine the amount of supply and which types of coffee to produce to reach the maximum potential for