Question

In Brazil, coffee beans are cultivated by a very large number of small farms that all produce beans of similar quality and taste at similar costs. Land is still plentiful, and the equipment required is affordable enough to allow new farming businesses to start up under current market conditions. However, better production techniques, especially alternatives to polluting fertilisers and deforestation, are needed in this industry. Using the theory and models of industry structure, examine this industry. Should government be worried about any aspect of how an industry with this market structure will perform?

Answer 1

This type of industry is called perfectly competitive. In this industry, there are many number of sellers who deals with same kind of goods and services. Here, there are large number of sellers with small farms who are dealing with same type of coffee that has same tastes as well. Prices in perfect competition is decided by the market forces (demand and supply) and hence, it is almost equal.

Yes, government should worry about the aspects of how this industry with this market structure will perform. It is given that there are large numbers of sellers. All the farmers are using same procedure and causing pollution to the environment due to lack of techniques to avoid pollution, fertilization and deforestation. Government should worry about environmental degradation caused by lack of efficient technologies. It should develops new technologies for the farmers so that they can use it and case less pollution and degradation to the environment.

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