Market Equilibration Process Paper
10 October, 2014
There are many products that yield a high price on markets today. 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 ...view middle of the document...
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 equal. One determinant of demand is the weather. It is the winter and fall months that reign supreme when it comes to consumption of coffee. Climates that are colder for longer periods have consumers who increase demand. This however, does not mean warmer climates have fewer consumers. Cold coffee drinks, frapachinos and iced coffee are popular and create a demand as well; however, with consumers these drinks are a “want” and not a “need.” Another determinant is the shorter day or during the holiday, when special drinks are used to affect factors in supply and demand. Other determinants of demand or factors that affect demand are things like taxes and tariffs the government imposes. Coffee is one of the highest taxed products in the U.S. Although people protest these cost increases, the tax of coffee still remains high. In the last decade the percentage of coffee drinkers has increased from 71% to 76%. The average consumer drinks 3.5 cups of coffee daily and baby boomers consume more because they are able to spend more. This is positive economics.
Is there a surplus or a shortage? Given the 15 billion pounds of coffee produced each year and realizing there is a two billion pound over production, we can come to the conclusion that there are generalizations which relate to economic behavior of the typical average consumer. Coffee is a highly demanded and the consumption of coffee is ceteris paribus.