Demand for a good is the various quantities that consumer will take of the market (per unit of time) at various prices, ceteris paribus (other determinants remain unchanged). Demand for coffee beans is relatively inelastic this means smaller percentage change in quantity demanded when the price change (fig.1). It is essential for the producer to know because elasticity of demand play a major role in total revenue. If PED for a product is inelastic (PED<1) this means by rising prices, the company increasing their total revenue. Inelastic demand also says that consumers will unlikely stop drinking coffee in a larger proportion to the price rise and vice versa. Coffee contains caffeine as everyone knows caffeine provoke addiction, this means coffee
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All the suppliers expected the price rise because of the not suitable conditions for coffee crops. All the others suppliers of coffee beans wouldn’t be able to cover estimated production shortage. The market expected the change in supply upward causing the price to rise. Indeed in the year of 2014 we can see relatively high prices for coffee beans (180 cents/lb compared with actual of 122cents/lb).It was due to anticipation of a big shortage, however it didn’t happen, the prices started to fall when it was clear that the estimated shortage is less than it was predicted (110.7 m. bags, 3.1% less than last year, it was the first drop in the supply for 5 years, but still it reached high level) After analysing the market, we can assume that future anticipation of price rise change the coffee beans price, the anticipation was the cause to stop the suppliers to realise coffee beans to the market. They wanted to sell coffee beans for the higher price in the future. In terms of economics it calls speculation. When the stock was realised the coffee beans price started to fall rapidly as we can see from November 2014 to April 2015.Causing surplus in the market, meaning there was more commodity than firms want to take of the market.
Moreover, it wasn’t the only reason why prices went down, the recent decrease in customer power in China (economic decline) and the rise in interest rates in the US. These countries are big demanders for coffee (due to big population), caused the change in the demand curve to shift to the left. Due to this fact we can say that in China and the US, income elasticity of demand (YED) is positive. This means coffee is normal good for the Chinese and the Americans. Coffee sales will fall when their income
All the suppliers expected the price rise because of the not suitable conditions for coffee crops. All the others suppliers of coffee beans wouldn’t be able to cover estimated production shortage. The market expected the change in supply upward causing the price to rise. Indeed in the year of 2014 we can see relatively high prices for coffee beans (180 cents/lb compared with actual of 122cents/lb).It was due to anticipation of a big shortage, however it didn’t happen, the prices started to fall when it was clear that the estimated shortage is less than it was predicted (110.7 m. bags, 3.1% less than last year, it was the first drop in the supply for 5 years, but still it reached high level) After analysing the market, we can assume that future anticipation of price rise change the coffee beans price, the anticipation was the cause to stop the suppliers to realise coffee beans to the market. They wanted to sell coffee beans for the higher price in the future. In terms of economics it calls speculation. When the stock was realised the coffee beans price started to fall rapidly as we can see from November 2014 to April 2015.Causing surplus in the market, meaning there was more commodity than firms want to take of the market.
Moreover, it wasn’t the only reason why prices went down, the recent decrease in customer power in China (economic decline) and the rise in interest rates in the US. These countries are big demanders for coffee (due to big population), caused the change in the demand curve to shift to the left. Due to this fact we can say that in China and the US, income elasticity of demand (YED) is positive. This means coffee is normal good for the Chinese and the Americans. Coffee sales will fall when their income