Question

Read the following article and answer the following questions.

VOLATILE COFFEE PRICES: COVID-19 AND MARKET FUNDAMENTALS

Since the covid-19 outbreak was declared a global pandemic by the World Health Organization in midMarch, the virus has spread to virtually all coffee exporting and importing countries. The ICO Composite Indicator Price, which is a weighted average of all major coffee origins and types, has shown a fluctuating but upward trend since February 2020. Due to social distancing and other measures imposed by governments to contain the virus, some coffee workers were quarantined and only one worker at a time can access a container to load bags of coffee. These have resulted in disruptions and delays, and subsequently in increased transaction and trade costs of coffee. Moreover, at the onset of COVID-19, there was higher supermarket sales of coffee resulting from panic buying and stockpiling as the public worried that coffee shops might be closed during the pandemic. Modified from the article in http://www.ico.org/news/coffee-break-series-2e.pdf

a. Some factors could affect the demand for and supply of coffee. Identify the two factors mentioned in the above article. Clearly state whether they affect demand or supply.

b. Suppose, under the above impacts in (a), there was a fall in the equilibrium quantity of coffee in the market. Draw a well-labeled demand-and-supply diagram to illustrate these impacts on the market for coffee. Briefly explain your answer.

Answer 1

b) the graph of b answer is here ,sorry for such a thing actually it's not dropping down( again sorry for inconvenience)

IMPACTS -

• This will increase the price of the coffee
• As supply is falling short to meet the sudden rise in demand
• As initally the price and quantity was at P and Q making equibirium at E
• With sudden demand shock, due to consumer stockpiling the supply with face shortage as in present scenario with slower working on supply side
• As a result the price will rise to P1 and quantity will fall to Q2 , bringing equibirium at E2 in the coffee market

a) FACTORS AFFECTING DEMAND AND SUPPLY OF COFFEE:

1. Taste and preference- For the people ,taking refreshing drinks are part of everyday life and tea and coffee are basic worldwide, so the taste and perference of people if is to use much coffee than demand will be high and to cater it supply will be done
2. Income and credit-  availablity of alternate is always an option , if in foreign land where coffee is not a native product than buying it could be little heavy on pocket that can decrease it's demand and supply too
3. Climatic conditions- Being the product of plantation, and is grown in open , suitable climate is of utmost importance, in absence of which yeild will drop, further dropping the supply
4. Existing level of stock- People working in the coffee industry can have estimates of annual demand for coffee and according the Production is done is stock is much left then it is smoother to meet demand
5. Availability of alternate - Being competent is one part of marketing as there are many substitutes owing to which if price of substitute is less the demand will fall in the substitute product horizon
6. Price fluctuations- Working in international market for coffee ,tariffs and duties ,sometimes supply from native nation can bring up the prices and if given subsidy or if is duty free than price can drop effecting demand and supply equally
7. Trends- As both coffee and teas are natural refreshing drinking , to make body and mind active , social factors do effect as , nations with high young workforce can be more into coffee intake than any other and could be visa versa , so it will further effect demand and supply also

ARTICLE FACTORS -

1. Owing to pandemic, the production and packaging process was slow ,futher with more trade and transaction costs. SUPPLY WILL FACE SHORTAGE
2. Stockpiling is yet another factor due to which temporarily the demand rose , thta bought in DEMAND SHOCK in market

As it's a POSITIVE DEMAND SHOCK , being temporary in nature , SS supply curve will shift to LEFT , cause with slower process and increased supply cost and demand shock will REDUCE SUPPLY AND HIGHER THE PRICE

Conclusion :

Though there are many factors that effect the demand and supply ,however in current pandemic with the sudden rise in demand i.e. stockpiling and owing to pandemic the safety norms has made supplies difficult making price rise and fall in demand

Kindly please rate the answer and do feel free to ask in case of doubt and Sorry once again for the non sequential format.