Supply and demand: Markets, Prices and price setting - Essay Example

market prices for coffee have increased, they will produce more coffee and thus, there will be an increase in the quantity of coffee produced in the market. This will mean that both the demand and the supply curve of coffee will shift to the right. A draught implies that there will be limited rain and consequently, limited coffee production. The farmers will limit their coffee production in order to cut down on the losses. Therefore, the coffee supply will be less than the demand. This will lead to an increase in the coffee prices since; coffee will be a rare product.

The coffee prices will thus increase thus reducing the quantities consumed. This will imply that the supply curve will shift to the left, but the demand curve will remain constant. Tea is a substitute of coffee and thus, when the price of tea decreases, people who consume coffee will substitute it for tea. This implies that consumers will shift from consumption of coffee to consumption of tea. This is because; tea has become relatively cheaper compared to coffee. Therefore, the demand for coffee will decrease as more people shift to tea consumption.

On the other hand, as the coffee demand decreases, coffee suppliers will lower their prices in an attempt to attract more customers to consume coffee. On the other hand, a decrease in the prices discourages coffee producers from producing coffee and thus, the quantity of coffee in the market decreases. This will mean that the demand curve for coffee will shift to the left while the supply curve will also shift to the left. A price floor implies that the government will impose a price limit within which coffee cannot be charged lower than that.

This implies that, the coffee prices will increase since the floor marks the lowest price that can be charged. The coffee demand will hence fall as the prices increase. Consumers will shift to the consumption of other beverages and lower their coffee consumption. As the growers become protected, they will