Question

1. When the price of a commodity like coffee increases, some consumers usually come up with the idea of a buyer's strike or “boycott.” That is, they propose to buy no coffee in order to drive the price down. Which statements best reflect the likely result if a boycott occurs? Circle or identify all that are correct. HINT: Draw supply and demand curves to “see” the results.

A. Coffee prices will decline while the boycott is in effect and successful.

B. Those consumers boycotting coffee benefit from the lower price.

C. Coffee drinkers who do not participate in the boycott benefit.

D. Regular tea drinkers are likely hurt by the coffee boycott.

E. In the long run when the boycott ends, coffee prices will return to the initial amount or even higher.

Answer 1

The following diagram shows the equilibrium price (e) of the coffee before the boycott. The p1 is the new price after the boycott. Because of the boycott of the coffee the demand for the coffee will fall to d1 and as a result the equilibrium price of the coffee will fall from P to P1.

The tea and the coffee are the substitute goods and due to the fall in the prices of the coffee the demand for the tea will fall to a great extent and as a result the prices of the tea will rise hurting all the regular tea drinkers.

HENCE THE FOLLOWING OPTIONS ARE CORRECT-

1- coffee price will decline while the boycott is in effect and successful.

2- those consumers boycotting coffee benefit from the lower prices

3- coffee drinkers who do not participate in the boycott also benefitted

4- regular tea drinkers are likely hurt by the coffee boycott.