SUPPLY AND DEMAND

Chapter 3

Meily Priliani (29318471)

Daniel Gani (29318345)
Bobby Mandala Putra (29318304)
Laurensia Anindita Dwiutri (29318380)
SITUATION
SITUATION
- Global Foods, Inc. is considering to get into the tea business that is expected to be the “growth
engine”
- In 2003, American consumers spent
- $5 bio on tea (grows 5x since decade ago)
- $20 bio for coffee
- Global Foods, Inc. currently is also on the soft drinks & bottled water business → growing the tea
market can possibly kill their current soft drink market (cannibalizing)
- Company is considering to get into the tea business, yet requires research in advance to
understand the market demand.
QUESTIONS
- Can tea be the real “spark” to the company’s growth in the coming 5 years?
- Will the tea products cannibalize their current soft drinks & bottled water products?
- What are the key determinants of the demand for tea?
- How responsive will people be to price changes?
- Is tea a “luxury” good or a necessity?
- How to price and position the brand in the market?
World Production and Consumption of Tea
REVENUE OF THE TEA MARKET WORLDWIDE IN 2017
Market Equilibrium Supply & Demand
Perceiving World production and consumption tea
in the past 10 years in prior figure, we can see that
the demand on tea is consistently increasing y-o-y.
Growth triggers :

● Change in tastes and preferences, the prize

of Tea rises, and so does the quantity bought
and sold.
● Healthy Point
Rationing Function

● An increase in demand causes equilibrium price

and quantity to rise.
● A decrease in demand causes equilibrium price and
quantity to fall.
● An increase in supply causes equilibrium price to
fall and quantity to rise.
● A decrease in supply causes equilibrium price to
rise and quantity to fall.
KEY DETERMINANTS OF DEMAND & SUPPLY

The Determinants of Demand:

The Determinants of Technology
● PRICE FACTOR
● PRICE FACTOR
● NON PRICE FACTORS
- Taste & Preferences ● NON PRICE FACTORS
- Income - Cost & Technology
- Prices of related products - Price of other goods
- Future expectations - Weather conditions
- Future expectations
 Will the tea products cannibalize their current soft drinks & bottled water products?

Yes, changing tastes and preferences may cause the demand for soft drinks & bottled water demand to
decrease and the demand for tea to increase.

The changing demand for those products causes a surplus in the soft drinks & bottled water market and
a shortage in the tea market.

So, in response price serves as a rationing agent by decreasing in the soft drinks & bottled water market Soft drinks & bottled water tea
and increasing the tea market.

The short-run response by suppliers of the products is to change their variable inputs (i.e., movement
downward along the supply line in the market for soft drinks & bottled water, and movement upward
along the supply line in the market for tea).

In the long run, price fulfills its guiding function by causing sellers and potential sellers to respond by
increasing capacity or entering the market for tea and by decreasing capacity or leaving the market for
soft drinks (i.e., rightward shift in the supply line for tea and leftward shift in the supply line for soft
drinks & bottled water)

As the result, new equilibrium levels of price and qty are established. The new qty bought and sold
represent shifts in resource out of one market and into the other.
 Pricing and Positioning The Global Inc. ‘s Tea
Product

● As Global Inc. is already

specialized in soft drinks &
bottled water business, so it will
be better if Global Inc. launch
tea product as necessity
product.
● The pricing itself, Global Inc.
should be average price
between coffee and tea.