Economics the Opportunity Cost of Thesis

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The relationship typically is that a decrease in supply will result in an increase in price. In this case, there is a rational explanation for the decrease in prices at the same time as the decrease in supply. New housing starts are a lagging indicator. Housing prices will typically begin to fall before new housing starts. Therefore, the two can fall at the same time, but the relationship is not as implied in the true or false proposition.

3. a) a blight killing off the Brazilian crop would result in a decrease in global coffee supply. Demand would remain unchanged. Therefore, coffee would be subject to an increase in price.

A b) a change in the price of tea may or may not impact the global coffee market. In some markets, they are substitutes but in many countries consumption is dominated by one or the other.

Thus, there is little correlation between the global tea and coffee markets, and none could be expected unless one of those markets completely collapsed.

A c) the labor situation would likely result in an increase in the price of coffee.

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The coffee market is only somewhat price sensitive, however, due to the strong habitual consumption of the drink. As a result, there will only be a minor decline in demand for coffee.

A d) if coffee was shown to cause cancer, demand for coffee can be expected to decline significantly. This would result in a steep reduction in price and production for coffee worldwide. The coffee that remains in production will be on the world market at a lower price than before the cancer announcement.

A e) if coffee prices are expected to rise rapidly in the near future, demand in the present would be expected to increase, as buyers attempt to stockpile supply at today's lower price. This will drive up the price, which could compound the expected price increase.

Demand may also decrease, in particular after the initial stockpiling. If the price of coffee increases rapidly, consumers may reduce consumption or move to substitutes. However, there is an element….....

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