Answer to Question #186041 in Microeconomics for Kwezi Spelele

Question

1. Identify and explain the type of price elasticity of demand of Starbucks Coffee with the aid of the diagram (10)

2. ''Starbucks is measured on luxury goods both high quality and high price''

With reference to the text above and the concept of income elasticity, draw a diagram and explain what would to the demand for Starbucks Coffee as income increases. (10)

3. With the aid of a diagram identify and explain the determinants of supply that would results in an increase and decrease in supply of Starbucks Coffee (10)

Answer 1

1. Starbucks coffee price elasticity of demand is inelastic.

Price elasticity of demand is a measure of how sensitive consumers are to a change in price. Starbucks coffee demand is such inelastic that the company can pass on higher costs to its customers.

Though black coffee is almost universally available, there are few alternatives to a Starbucks coffee. Such a product has a more inelastic demand.

2.Income and demand are directly linked, this indicates that as income rises, the demand of Starbucks coffee increases.

 So if incomes increase, the demand curve for starbucks coffee, will shift to the right. At the same prices people will buy more.

3.

Changes in preferences of buyers can have important consequences for demand. We have already seen how Starbucks supposedly increased the demand for coffee. A change in preferences that makes one good or service more popular will shift the demand curve to the right. A change that makes it less popular will shift the demand curve to the left.

As incomes rise, people increase their consumption of many goods and services, and as incomes fall, their consumption of these goods and services falls. For example, an increase in income is likely to raise the demand for coffee and other complimentary goods.

Prices of Related Goods and Services also determine supply in that; Suppose the price of doughnuts were to fall. Many people who drink coffee enjoy dunking doughnuts in their coffee; the lower price of doughnuts might therefore increase the demand for coffee, shifting the demand curve for coffee to the right. A lower price for tea, however, would be likely to reduce coffee demand, shifting the demand curve for coffee to the left.

Buyer expectations-many Starbucks coffee customers prefer their coffee as is presented and served at starbucks. This may be in terms of quality of products and services offered. Product pricing and even aesthetics also determine supply of coffee.

Lastly the cost and availability of quality coffee beans in the market may influence supply of good coffee for customers either to increase or decrease. They should strive to maintain consistency in their coffees tastes.