Focus on Microeconomics - Assignment Example

The curve gives an illustration of the law of demand. In economics, there is a relationship between the price of a commodity and its demand. This means when one rises the other falls. Economists have tried explaining the downward slope. When the price of commodity drops or rises, people tend to buy more or less of the commodity for the same amount of money. Secondly, if the consumers of the products do not see the difference between the existing products they tend to purchase one with the lowest price; therefore, any chance of an increment in the price of a commodity will drive them to purchase a substitute for the product while reduction of the price will further drive them in.

In any market, it is obvious that the price of a commodity influences the demand. In the coffee market, other factors other than price do play a significant role in making a shift in coffee demand. They include:

Taste- the sweeter the taste of coffee brand the greater will be its demand in the market.

Prices of other goods- this is the price individuals are willing to pay for the substitutes. If the coffee price is higher compared to other products then the consumers will opt to purchase the substitutes.

Disposable income- when the amount set for purchasing products is high due to increasing income, consumers tend to have more money to spend, and this will increase the demand for coffee products.

There are two basic reasons put forth to explain the behaviour of the supply chain curve. As the production of goods is expanded, the consumers first turn to the resources and people whose opportunity costs of producing the good are lowest and only then to those whose opportunity costs are high. When the commodity price is high, the more likely the resources are relatively less efficient at producing the commodity. Secondly, it has been observed that the cost of good production rises as more of the good is produced hence the supply curve moving upward (Evans and Honkapohja, 421).

Much like the demand for coffee, its supply can be influenced by several shift factors of supply, which are the forces other than price that affects the quantity of the product to be supplied. When the global demand for coffee is high, its supply is good. In any way, when its demand declines in the global market then there is an automatic shift of its supply overall. Other factors include changes in technology meaning more production of the product. Changes in the price of raw materials or input resources, taxes and subsidies that are levied on the production meaning that the company can produce more of the product at cheaper costs also leads to curve shift. Read More