Answer to Question #70921 in Microeconomics for tina

Question

Please analyze the impacts of the following events on the equilibrium price and equilibrium quantity in the coffee market.
(A)Event one: consumer’s incomes decrease due to economic recession
(B)Event two: the price of imported coffee bean rises.
(C)Event one and Event two

Answer 1

A. In case when consumer’s incomes decrease due to economic recession the demand curve moves to the left, because buyer’s willingness to pay falls and people are able to buy smaller quantity of coffee at the same price (coffee is not essential good). Equilibrium quantity decreases, equilibrium price decreases.

B. In case when the price of imported coffee bean rises the supply curve moves to the left, because producer’s costs rise and smaller number of them are able to produce coffee at the same price. Equilibrium quantity decreases, equilibrium price increases.

C. In case of both events equilibrium quantity decreases. Equilibrium price depends on degree of influence of factors on producers and consumers. If recession influences on consumers in a greater extent the equilibrium price decreases and conversely.