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Case 2-2

Changes in
Demand &
Supply and
Coffee Prices

Fernandes Antoni Ginting 29117301


Vanny Agustia Ningsih 29117302
By : SinoHara Umi Syarifah Ambarwati 29117309
Lia Indi Agustiana 29117311
Introduction
• This coffee case study assignment
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.
P = 1 , Q = 10
Price
Supply > Demand
($)
Price Decreased Quantity Increased,
S
2.00 Revenue for coffee farmers is
Decreased.
Price of coffee per pound

Quantity Revenue
1.40 (billion for
Price
pounds coffee
($) per year Farmers
) ($)
1.00 E
1 10 10
0.5 15 7.5
0.50

0.25
D
0 5 10 12.5 15 2 Q/t
0
Million pounds of coffee per year
P = 0.50 , Q = 15
Price
($) If, over time, D shifts to D' and S
shifts to S', the world price of coffee
S falls to $0.50 per pound and the
2.00 quantity rises to 15 billion pounds per
year (shown by new equilibrium point E"
Price of coffee per pound

in the figure). This, however, produces


a total revenue (income) for coffee
1.40 farmers of only $7.5 billion per year.

S’
1.00 E

0.50 E”

0.25
D’
D
0 5 10 12.5 15 2 Q/t
0
Million pounds of coffee per year
P = 1.5 , Q = 12.5
Price
($)
S
2.00
Price of coffee per pound

If only D shifted to D',


the price of coffee
1.40 E’ would be $1.40 (point E'
in the figure)

1.00 E

0.50

0.25
D’
D
0 5 10 12.5 15 2 Q/t
0
Million pounds of coffee per year
P = 0.25 , Q = 12.5
Price
($)
S
2.00
Price of coffee per pound

while if only S shifted to


S', the price of coffee
1.40 would be $0.25 (point E*)

S’
1.00 E

0.50

0.25 E*
D’
D
0 5 10 12.5 15 2 Q/t
0
Million pounds of coffee per year
Curve Demand , Supply, and Coffee
Prices
Price
($)
S
2.00
Price of coffee per pound

1.40 E’

S’
1.00 E

0.50 E”

0.25 E*
D’
D
0 5 10 12.5 15 2 Q/t
0
Million pounds of coffee per year
Conclusion
• Elasticity. If there is availability of more close
substitutes in market, demand of good will be more
elastic and vice versa.
• Coffee has elastic demand (e > 1), therefore,
percentage change in price is greater than that in
quantity demanded. It is because in elastic goods,
consumers are responsive to price changes.
• Illustrates Elasticity of Coffee and Impact of Price
on Total Revenue :

Year Price ($) Reason


Supply & Demand
1998 1.40
Optimal
2002 0.48 Supply 2x Demand
2008 1.58 Supply Increase
Thank You