Case Study Essay Assignment help On market for coffee
This coffee case study assignment help paper describes impact of some events on price and quantity of coffee in the market. In addition, it also explains different determinants that can influence the elasticity of goods. This case study analysis paper suggests elasticity for coffee on the basis of determinants and depicts about impact of price of coffee on total revenue including concern of elasticity.
Impact on Price and Quantity of Coffee
In this situation, the demand of coffee will increase because people will be interested to buy coffee and drink it due to knowing advantages of drinking coffee as per scientific studies. In today’s scenario, people are more concerned to their health issues. This advertising campaign highlights the findings of scientific studies that to drink coffee can be helpful in reducing weight gain. It will change the perception of the people regarding drinking coffee in health concerns. Therefore, there will be an increase in demand of coffee in market. Along with this assignment help, increased demand will also raise the price of coffee in market because manufactures will make most of this situation by increasing price of coffee on higher demand (Arnold, 2008). The higher price will lead to an increase in the quantity supplied. This event will cause a right shift of the demand curve that will cause price and quantity of coffee to increase.
The coffee plants from major producing countries are affected by shortage of the premium coffee beans known as Arabica coffee that increased the price of coffee in market. Demand of this coffee is increasing day by day in different countries. Due to shortage of this coffee bean, Starbucks started to increase the price in the U.S. and china. It affected the profit of the company that enforced it to stop price hike further. Green Mountain Coffee Roasters also increased its prices for coffee products in North America. Another companies such as J.M. Smucker Company, Peet’s Coffee & Tea and Yuban and Maxwell House coffees also raised prices on their top coffee products due to increase in the price of green coffee beans due to shortage. This price increase put a pressure on world coffee supplies. It decreased the supply demanded due to high price of coffee in market. This event shifted the demand curve in left side that increased price and quantity supplied for coffee in the market (Hinchliffe & Woodward, 2004).
Fun fact for a coffee bean is a misnomer for the seed of a coffee plant. It is because for gourmet coffee, outcomes of price increase are different rather than Arabica seeds. It means that when prices go up for gourmet coffee, people will keep buying it. Due to inelasticity of coffee with respect to prices, the shortage in coffee may not be eased in a quick manner with respect to rise in coffee prices. It is because high demand of coffee is expected to grow in future (Rothbard, 2008).
Coffee and Tea are substitutes that mean if there is an increase in price of one product; there will be raise in demand of another substitute product. In condition of decrease in price of tea, the demand for coffee will go down that will put pressure on price of coffee to decrease in market. It is because consumers will prefer to drink tea due to low price that will decrease the demand of coffee in market. In order to increase the demand of coffee, companies will have to decrease the price of coffee to attract more consumers (Arnold, 2008). Thus, decrease in price of coffee will cause a decline in the quantity supplied. This condition will cause a left shift of the demand curve and lead to decrease in price and quantity of coffee.
In condition of fair trade coffee, demand for coffee will be increased because of preference by the consumers to support a fair trade minimum price. It is like to pay more for a better product that has quality. In this case, consumers will be ready to pay more for coffee that allows the growers to meet their needs and preferences. This fair trade coffee will be different from traditional coffee. The fair trade label can be successful to attract more customers in comparison of traditional coffee. Therefore, when consumers will select the fair trade label, demand for fair trade coffee will be increased. Higher demand will have a positive influence on price of coffee, as it will be also increased. The higher price will also increase the quantity supplied because farmers will be interested in increasing their supply of fair trade coffee only (Carbaugh, 2010). This event will cause a right shift of the demand curve that will cause price and quantity of coffee to increase.
Major Determinants of Elasticity
As per business assignment help experts,there are different determinants of elasticity such as substitute availability, nature of good, fraction of budget spent on commodity, time period, etc.
The number and proximity of substitute products is a major determinant that affects the numerical value of elasticity. If there is availability of more close substitutes in market, demand of good will be more elastic and vice versa. It means that a product having different close substitutes in market has greater price elasticity of demand. In this condition, there are more choices for the buyers and sellers to switch between substitute products that provide more elasticity. For example, tea and coffee are close substitute, so they have higher elasticity of demand, while salt or sugar don’t have close substitute as their price elasticity is lower (Taylor & Weerapana, 2007).
Nature of Good:
Goods can be categorized into luxuries, necessities and comforts. In this concern, elasticity of demand for luxurious commodities is more than that of necessities and comforts. It is because use of luxury goods can be delayed, when their prices rise. Along with this, use of necessities cannot be postponed as their demand is inelastic. Elasticity of demand for comforts is between both commodities. Apart from this, elasticity of demand for durable goods is more than that of nondurable goods because consumers try to get the old one repaired (Baumol & Blinder, 2011).
Fraction of Budget Spent on Commodity:
The proportion of budget spent on a commodity is another factor that affects the elasticity of demand. In this, if fraction of a buyer’s budget on a particular good like petrol is large, its demand will be more elastic. In contrary to this, if the proportion of budget spent on a commodity such as toothpaste is small, it will have more elasticity of demand. Therefore, consumer continues to buy almost same quantity of these less proportion having goods even when their prices increase.
The price elasticity also depends on the time period needed for the customer to adjust their consumption pattern to price change. If there is more availability of time, the price elasticity will be greater. Short period of time does not permit buyers and sellers to analyze their consumption pattern and production decisions for changes in price. Time is needed for buyers to find substitute to consume, while sellers need time to arrange resources for production of substitutes. For example, if price of refrigerator decreases, demand will not increase instantly. With the time, people may be able to adjust their consumption pattern and can purchase refrigerator at new price (Mankiw, 2011).
Elasticity of Coffee and Impact of Price on Total Revenue
On the basis of determinants of price elasticity, it can be stated that demand for coffee is elastic. It is because in perspective of availability of close substitute, coffee has a close substitute i.e. tea, therefore there is more possibility to switch from coffee to tea by the consumers on increase in price of coffee. In concern of nature of good, coffee can be said comfort commodity that has elastic demand between necessities and luxury goods. Along with this, proportion of budget spent on coffee is small that makes its demand more elastic (Sexton, 2011).
Total revenue decreases, when the price of coffee is increased. Coffee has elastic demand (e <1), therefore, percentage change in quantity demanded is greater than that in price. It is because in elastic goods, consumers are responsive to price changes. In condition of rise in price of coffee, quantity demanded or sold will be decreased that will lead to fall in total revenue.
On the basis of above discussion by case study analysis experts, it can be stated that an advertising campaign including scientific studies based on benefits of drink coffee can increase the demand and price of coffee in market. In addition, shortage of coffee bean has an impact on plants to increase the price of coffee that decreases its demand in market. Tea and coffee are substitute products that influence demand and price of each other on change. Implementation of fair trade practices can increase the demand of coffee due to have a positive influence on mind of customer. In addition, there are some determinants of elasticity such as substitute availability, nature of good, fraction of budget spent on commodity and time period that affects its value. Demand of coffee can be stated as elastic based on determinants that will decrease quantity demanded and total revenues on fall in price.
Arnold, R. A. (2008). Microeconomics. USA: Cengage Learning.
Baumol, W. J. & Blinder, A. S. (2011). Economics: Principles & Policy. USA: Cengage Learning.
Carbaugh, R. J. (2010). Contemporary Economics: An Applications Approach. UK: M.E. Sharpe.
Hinchliffe, S. & Woodward, K. (2004). The Natural and the Social: Uncertainty, Risk, Change. UK: Routledge.
Mankiw, N. G. & Taylor, M. P. (2006). Microeconomics. USA: Cengage Learning EMEA.
Mankiw, N. G.(2011). Principles of Economics. USA: Cengage Learning.
Rothbard, M. N. (2008). Mystery of Banking. UK: Ludwig von Mises Institute.
Sexton, R. L. (2011). Exploring Economics. USA: Cengage Learning.
Taylor, J. B. & Weerapana, A. (2007). Economics. USA: Cengage Learning.
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