The Coffee market
The graph below shows the global market for unprocessed coffee beans. It
shows the world price and the quantity of beans bought for each quarter in 2005
and 2006. The market works by farmers growing coffee beans and then selling
them on the open market to producers who roast, package and market the
ground coffee. The global coffee market is perfectly competitive.
You are managing a team trying to work out how responsive the demand for
unprocessed coffee is to price changes. During your research you find out the
following:
1) The price of tea doubled at the start of the third quarter of 2006 and then
decreased sharply at the start of the fourth quarter. During the rest of
2005/2006 the price of tea has been constant.
2) Disease wiped out half the Brazilian coffee crop in the first week of January
2006. It takes two years for crops to recover.
Answer the following questions: using a diagram is encouraged:
a) Account for the price and quantity movements in the final 2 quarters of 2005 and
Q1 2006
b) Account for the price and quantity movements during the three quarters
following Q1 2006.
