Supply and Demand: Economics Essay

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Even in consumer’s everyday lives, the principles of economics are evident. This can be seen in the current state of the coffee market, as the beverage grows more ubiquitous worldwide, even in traditional tea-drinking nations such as China, Japan, and India, and more and more consumers in America are willing to pay premium prices for the product. According to a 2016 article in Forbes by Laura Lorenzetti, although world demand for coffee is on the rise, Americans are still driving the trend. Coffee consumption has increased and thus prices for the beverage have increased, as suppliers can command a higher price for their product. Coffee production itself has also been hard-hit by bad harvest in critical production areas such as Brazil. Coupled with physically curtailed demand and the willingness of consumers to pay more, prices have seen a corresponding increase.

Under most circumstances, producers will increase production if they know consumers will pay more, and demand and supply will reach equilibrium. But in instances such as this, producers cannot meet demand quickly, and prices have correspondingly climbed.

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Also, in some areas of the world, the social cache of coffee has increased, along with middle-class salaries in developing world nations that are now consuming more coffee. This results in a greater willingness to pay higher prices and again, producers are more than willing to respond in kind. Higher demand coffees and the new taste for premium varieties also means producers are shifting their focus of production to these types of goods.

All of this demonstrates the variety of factors which can impact supply and demand, including weather, consumer tastes, and general economic circumstances such as the relative wealth or poverty of nations that use the beverage. It can also be added that although there are substitute goods for coffee, the fact that for most consumers even expensive coffee is not a significant portion of their budgets may make them more willing to pay more.

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