Question

The Coffee Beverage industry is vital in the US. For many, a good cup of coffee is a nice addition to breakfast. To others (including your instructor), coffee is a necessity for a productive workday. Using the supply-demand diagram, analyze how each of the following events would impact the equilibrium price and quantity of coffee beverages. For each event, you want to draw the supply-demand diagram in the initial equilibrium. Then, incorporate the impact of the event on supply and/or demand. Identify the new equilibrium and state whether prices and quantities are expected to rise or fall. Make sure your figures are clearly labeled!

Events:

1. An insect that feeds on, and destroys, Arabica coffee plants has invested large tracts of coffee fields in Colombia.
2. Coffee drinks become more popular among high school students.
3. A new roasting technology is developed which increases the viable roasted bean yield (more beans make it through the roasting process).
4. A new documentary about Kopi Luwak airs on 60-Minutes. Consumers are not pleased. (Hint: read the Kopi Luwak Wikipedia page to understand why.)

Answer 1

Question:

Part 1: As insects have destroyed the crops, supply of coffee will decrease leading to a decrease in equilibrium quantity and an increase in equilibrium price.

Part 2: As coffee becomes more popular, demand of coffee will increase, leading to an increase in both equilibrium quantity and prices.

Part 3: Improvement in roasting technology will increase supply leading to a decrease in equilibrium price and an increase in equilibrium quantity.

Part 4: Kopi Luwak is the coffee which was eaten and partially digested and then defeated by an animal.

This lead to decrease in demand leading a decrease in both equilibrium price and quantity.