ECON 5

SITUATION ANALYSIS: MILK TEA CRAZE

A. Demand Analysis

Milk tea has been a trend in the Philippines in these recent years. It is one of the most in demand
beverages in the country. Although tea is a popular drink, it was in 2010 when the milk tea craze
reached the country. According to many food experts, “Serenitea'', owned by Peter and Juliet
Chen, is the first milk tea shop in the Philippines opened in December 2008.

In the following years, many milk tea shops started to open and franchise throughout the country.
Over the years, Filipino consumers continue to patronize this popular Asian drink, emerging as a
“super sweet” market for entrepreneurs. As reported in 2019 that Filipinos ranked second highest
milk tea drinkers in Southeast Asia followed by Thailand which ranked as Top 1. In average,
Filipinos consume 5 cups per person per month. This implies that milk tea is a trend in the
country. Social media played a significant role in reaching more Filipinos to consume milk tea in
various flavors. Many entrepreneurs sell and add innovations for their milk tea.

Different stores sell Milk Tea at different prices depending on the economic status of the target
market, production cost, and the value added for the product. In this case, we are going to
introduce Dessa as a milk tea patron and an online part-timer. If the price of milk tea is P90.00,
she is willing to consume 20 cups of Large milk tea per month. Given her limited income, as the
prices of milk tea rises by 10 pesos, her demand falls by 12 units, given that other factors are
constant.

Table 1.Demand Schedule of Milk Tea with Pearls

Price (in pesos) Quantity Demand of Dessa (by cup per
month)

P 85.00 24

P 90.00 20

P 95.00 16

P 100.00 12

P 105.00 8

Task 1: You create a demand curve using the schedule shown in Table 1 where price is in
vertical axis and quantity demand is in horizontal axis. You explain the relationship
between the price and quantity demand.

With Dessa’s original income, she is willing to pay P90.00 for 20 pieces of Large Milk tea per
month. When her income triples, she is now willing to consume 30 pieces of Large Milk tea per
month at the same price. If the price of Milk tea will increase to P100.00, given her new income,
her consumption will remain the same (20 pieces of Large Milk tea per month).

Task 2: From the original demand curve, you illustrate one new demand curve with a label
of Qd1 given the new situation where Dessa’s income triples (when prices remain the same
which is 90 pesos, and when it increases to P100.00). Here, you distinguish change in
demand and change in quantity demand. What do you think is the main factor affecting
the shift of the demand curve?

On the other hand, Joe’s demand for Milk Tea declines when his income increases as shown in
Table 2. This is possibly because Joe preferred more on spending for Starbuck Coffee rather than
milk tea. When the prices of Milk tea increases to P100, he is willing to consume only 8 cups of
Large Milk Tea per month and prefer other substitutes.

Table 2. Demand Schedules of Joe for Milk Teas

Price (in pesos) Quantity Demand (Qd0) of Quantity Demand (Qd1) of
Joe (by cup per month) Joe (by cup per month) New
Previous Income Income

P 85.00 17 14

P 90.00 15 12

P 95.00 13 10

P 100.00 11 8

P 105.00 9 6

Task 3: You create demand curve(s) of Joe for Milk tea given the data shown in Table 2.
Explain what happened to the demand of Joe after his income increases. What do you
think are the factors influencing the shift of Joe’s demand for Milk Tea?

Now, the trend of the milk tea industry has been diminished. On this, the willingness of people
including Dessa and Joeto buy Milk tea also declines given that their income increases. As
shown in Table 3 is the New market demand schedule given the diminishing trend for milk tea
products.

Table 3. Individual and Market Demand Schedule for Milk Tea

Price (in pesos) Quantity Demand Quantity Demand Others Total Market
of Dessa for Milk of Joe for Milk Demand for Demand
Tea per month Tea per month Milk Tea per
month

P 85.00 25 10 30
 P 90.00 21 8 25

P 95.00 17 6 20

P 100.00 13 4 15

P 105.00 9 2 10

Task 4: You create a demand curve of each individual demand based on the given data in
Table 3. In the same graph, you also create a demand curve for market demand.
What do you think is the factor affecting the decline demand of Dessa and Joe?

In order to revive the trend for the milk tea industry, entrepreneurs think of promoting buy 1 take
1 of Milk Tea next week.

Task 5: Answer the following questions.

1. What will happen to the demand of Milk Tea today if consumers like Dessa and Joe will
expect that there will be a promo of buy 1 take 1 for Milk Tea next week?
2. What will happen to the demand for Milk Tea next week if consumers like Dessa and
Joe will expect that there will be a promo of buy 1 take 1 for Milk Tea next week?
3. What do you think is the factor affecting the demand of Dessa and Joe given the
situation above?

Due to the increase of production cost for Milk Tea, entrepreneurs decided to increase the price
for Milk Tea. However, other substitutes for Milk Tea like Frappe decline their prices.
Task 6: Answer the following questions.
1. What will happen to the demand of Milk Tea today if the prices of other substitutes
decline? Illustrate demand curves for better presentation.
2. Assume that Dessa cannot drink Milk Tea without fries and burger. What will happen to
the demand of Milk Tea if the price of fries and burger increases? Illustrate demand
curves for better presentation.
3. What do you think is the factor affecting the demand of Dessa given the new situation
above?

Some of the Milk Tea stores in low-class municipalities did not sustain due to the low market
demand. Also, these types of municipalities have small populations or market size unlike in 1st
Class cities. Thus, some Milk Tea stores decided to open and compete in Cities.
Task 7: Answer the following questions.
1. What do you think is the factor affecting the shift of demand for the Milk Tea industry
given the situation above?
2. What will happen to the demand of milk tea stores in low-class municipalities if the
population will grow?

B. Supply Analysis
Given the growing market demand of the Milk Tea industry in these recent years, many
entrepreneurs engage in selling Milk tea. Sellers are willing to sell more milk tea products
especially when the price increases as shown in Table 4. However, there are factors that could
affect the supply for these products such as the quantity of available raw materials or resources,
production cost, state of technology used, government regulation such as taxes and subsidies,
natural forces/ weather condition, and the number of sellers or competitors in the Market.
Moreover, as shown in Table 4 is the supply schedule for Strawberry Large-sized Milk Tea in
Cue-Tea.

Price (in pesos) Quantity Supply for Milk Tea per month

P 85.00 450

P 90.00 480

P 95.00 510

P 100.00 540

P 105.00 570

Task 8: Given the information you do or answer the following:

1. You create a supply curve, where price is in vertical axis and quantity supply is in
horizontal axis, using the supply schedule shown in Table 4. You explain the relationship
between price and quantity supply.
2. Given the case shown above the Table 4, what do you think is/are the factor(s) affecting
the change in supply for Milk Tea?
3. What will happen to the supply curve for Milk Tea if there is a lack of supply of
ingredients? Will it shift to the left? Or to the right? (Illustrate your answer using supply
curves).
4. What will happen to the supply curve for Milk Tea if there is an increased availability of
resources? It will shift to the left? Or to the right? (Illustrate your answer using supply
curves).
5. What will happen to the supply curve for Milk Tea if there are new entrants of
competitors near in Cue-Tea? Will it shift to the left? Or to the right? (Illustrate your
answer using supply curves).
6. What will happen to the supply curve for Milk Tea if the cost of production increases?
Will it shift to the left? Or to the right? (Illustrate your answer using supply curves).
7. What will happen to the supply curve for Milk Tea if the equipment used in making the
product became obsolete? Or to the right? (Illustrate your answer using supply curves).
8. What will happen to the supply curve for Milk Tea if Cue-Tea will invest for advanced
technology? Will it shift to the left? Or to the right? (Illustrate your answer using supply
curves).
9. What will happen to the supply curve for Milk Tea if the government implements an
increase in minimum wage? Will it shift to the left? Or to the right? (Illustrate your
answer using supply curves).
 10. Due to the typhoon landing in Baguio, the supply of strawberries decreases. What do you
think will happen to the supply curve of Strawberry Milk Tea? ? Will it shift to the left?
Or to the right? (Illustrate your answer using supply curves).

References:

http://fnbreport.ph/news/filipinos-rank-second-highest-bubble-tea-drinkers-in-southeast-asia-anrii-20190502/
https://www.yummy.ph/news-trends/milk-tea-trend-history-philippines-a00261-20190307-lfrm2
https://okay-nowwhat.com/2020/07/30/milk-tea-philippines-craze-history/