Analysis Of The Coffee Bean Market

In this essay, I will conduct an economic analysis of the coffee bean market to explain how the short and long run affects price fluctuations, and whether or not government intervention should be used to stabilise prices to benefit the growers. The assumption of demand and supply is that as demand is increased, supply will need to increase to maintain the market equilibrium. Arguably the consumer has very little influence on the levels at which demand and supply operate at, though this is contested due to the fact that a product cannot be sold unless it is demanded(desired) by a consumer. Although increasing and/or decreasing either the demand or supply of a product creates a new market equilibrium, it is usually short lived and we expect

However, there is much debate surrounding the use of subsidies as many critics argue that relying on subsidies prevents suppliers from actually solving their production problems. Nevertheless, subsidies do ensure that prices can be kept low and is a much faster solution. To prevent such price fluctuations within the coffee bean market, government intervention in the form of price controls may be the only way to ensure that the coffee bean market remains stable. Price floors limit the minimum price that can be charged for a product, in this case coffee bean farmers will be protected as their product cannot be sold at a price that is too cheap, therefore they themselves can sell the coffee beans for a decent price. A price ceiling on the other hand, is the maximum price for which a product can be sold to a consumer. Since the government may only implement one intervention strategy, it would therefore be expected that they introduce a price floor to the coffee bean market. If the price is not above the equilibrium price it will be ineffective as the market will not sell. (Begg, Fischer and Dornbusch. Economics, 2005) Government intervention may not strictly refer to what we automatically assume. We may also consider the governance of international bodies such as the European Fair Trade Association (EFTA) which is a member of the World Fair Trade Organisation. Such bodies ensure that coffee growers receive a fair price for their products by charging their consumers a premium price. Perhaps if more coffee brands bought from fair trade suppliers, there would be less volatility in the