Question

 1. Coffee prices are coming down again, after hitting a record high of $4.42 last year. An agricultural Department economist, who had predicted $5.00 a pound coffee this year, says he "underestimated the power of the U.S. consumer movement." Perhaps as with so many economists these days, he simply forgot his freshman economics, which has nothing to do with "movements." The coffee market is behaving the way the basic textbooks say a market behaves. Prices go up, demand falls, and prices come down.

 2. The "Consumer movement" mentioned in this passage refers to attempts by various consumer groups to organize a "coffee boycott" by drinkers to reduce the price of coffee.

 a. How would a boycott by consumers affect a supply and demand diagram of the coffee market?

 b. Would your own individual decision to join the boycott affect the price of coffee?

 c. Suppose the boycott is initially successful in bringing down prices. If consumers now return to drinking coffee, what will happen to the supply and demand for coffee? What will happen to the price?

 d. Do you think boycotts are likely to be successful in all but the very short term? Explain.

Answer 1

Demand is the quantity that a consumer want to purchase and supply is the quantity that a supplier is willing to sell at a particular price.

The law of demand states that when price moves up the demand is bound to take a fall and the prices will eventually fall till equilibrium is reached. Let us depict this graphically:

Here in the above figure at E Demand = Supply hence equilibrium reached and the price is equilibrium price.

(a) So “How would a boycott by consumers affect a supply and demand diagram of the coffee market?”

Boycott means to not buy a particular thing for a reason. There consumers boycotting coffee means they will not buy the coffee and the demand will fall in the market as shown in the graph:

(b) “Would your own individual decision to join the boycott affect the price of coffee?”

In the perfectly competitive market no single individual is in a position to affect the market price.

Hence a single individual will not ab able to influence the price BUT a group of individuals will be successful in doing so.

(c) “Suppose the boycott is initially successful in bringing down prices. If consumers now return to drinking coffee, what will happen to the supply and demand for coffee? What will happen to the price?”

With the boycotting initially successful the consumers will continue to drink coffee. However this will again prompt the demand to rise thereby increasing the demand and price will again rise. But this time supplier will be careful enough to keep the boycott event in the mind and incise the supply in the market to keep the price in the market stable.

(d). “Do you think boycotts are likely to be successful in all but the very short term? Explain”

Yes I completely agree with this. Boycotts are very likely to be successful in the short term because:

1. Consumer will continue to consume a per their taste

2. Consumer base is not uniform. Some are rich some are in middle and some are poor. So we cannot expect a uniform decision from everyone

3. Boycotts require group coordination which is tough

4. Sometimes boycotts are also illegal and unethical

5. In the long run they are not successful because it cannot be stretched for too long.