Question

Suppose a drought strikes the major coffee growing regions of Brazil. Describe the effect of the drought on the price and quantity of lattes in the context of the supply and demand model.

Answer 1

the ingredients that go into a latte are espresso( a black coffee), steamed milk with a layer of milk foam. Price of any good in any market is dependent upon the supply and demand for the product. If a drought strikes the major coffee growing regions of brazil then coffee beans production will be badly affected which leads to a decline in supply of coffee beans. As we already know when there are less goods in comparision to money circulated in the economy , then such less quantity of goods will claim big amounts of money which we call as inflation. Such increased prices will drive the latte price higher and the number of lattes available will be lower.