Recent Changes in the Price of Coffee

Recent Changes in the Price of Coffee

Introduction

A market exists wherever there are buyers an sellers of a particular

good. Buyers demand goods from the market whilst sellers supply goods

onto the market. Demand is the quantity of goods or services that will

be bought at any given price over a period of time. The demand curve

is downward sloping, showing that the lower the price, the higher will

be the quantity demanded of a good.

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[IMAGE] Demand curve

Supply in economics is defined as the quantity of goods that sellers

are prepared to sell at any given price over a period of time. The

supply curve is upward sloping, showing that firms increase production

of a good as its price increases. This is because a higher price

enables firms to make profit on the increased output whereas at the

lower price they would have made a loss on it.

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Supply curve

If in a market there is more supply than demand there is then a

surplus of this good. A rise in the price of this good leads to a rise

in the quantity supplied shown by a movement along the supply curve.

The change in supply can be caused by a change in production costs,

technology and the price of other goods. At a lower price some firms

will cut back on relatively unprofitable production whereas others

will stop production altogether. The demand for a good will rise or

fall if there are changes in factors such as incomes, the price of

other goods, tastes, and the size of production. The demand curve

shows effective demand, this means it shows how much would be bought

by customers at any given price and not how much buyers would like to

buy if they had unlimited resources. Equilibrium is the point where

the demand and supply curves cross. This is the central point where

expectations are being realised.

The reasons behind the countries having a larger supply are that the