In economics, they say a picture is worth a thousand words. Below, you will find two scenarios. Your assignment is to discuss the situation by writing the solutions, and then show the solutions and how you got here in one or more graphs or flowcharts.
Supply and demand are foundational concepts in understanding economic theory. Whether you are a coffee drinker or not, you have been tasked to examine the impact of supply and demand when dealing with the coffee retail industry. A few companies probably come to mind. Pick a major coffee retailer, and then contemplate what has been happening to both the supply and demand for this product.
Next, analyze the following scenario that deals with what happened in the coffee industry at the beginning of the last decade:
In the early part of the last decade, there was an overproduction of coffee. The price dropped so low that producers’ costs were higher than the market price. The reason this happened was that market prices became high before this, and the supply of coffee increased substantially. In the meantime, demand for coffee and everything else remained the same.
Coffee prices, as a supply input, went down. In the meantime, gourmet coffee houses began appearing, which began charging a premium for coffee in the period of decreasing prices. Gourmet coffee houses tend to open in high-rent areas and cater to higher income consumers. Because of the change they created for taste and preferences and the higher income market, the gourmet coffee houses had a win-win in a period of falling wholesale prices and increasing retail prices.
- Explain the changes in the supply and demand creating a supply and demand curve based on the above information.
- In this graph, be sure to demonstrate how these changes affected the price and quantity levels of supply and demand.
- Based on this analysis, how were coffee retailers faring in the marketplace?
In this next scenario, start your discussion by examining the differences between the definitions of the macroeconomics and microeconomics. Next, discuss how the concepts of supply and demand relate to (1) microeconomics and (2) macroeconomics.
For you to demonstrate understanding of supply and demand from the perspective of microeconomics versus macroeconomics, pick 2 of the 10 scenarios below and discuss the following questions:
- Is the scenario a macroeconomic or microeconomic example of supply and demand?
- Is this impacting supply or demand?
- Is this example going to experience a shift or a movement of supply or demand?
- As a result of this change, what happened to equilibrium price and quantity?
The 10 examples for you to consider are as follows:
- After Hurricane Katrina, what happened to the price of fish?
- After the development of the microchip, what happened to the price of computers?
- After the government raised tariffs on imported cheese, what happened to the price of domestic cheese?
- Polyester suits have become trendy again. What happens to their price?
- Internet auction sites are becoming more popular, and people are using them more and more.
- A new health report came out that said red wine lowers cholesterol.
- The government raises taxes.
- Inflation increases.
- Immigration laws are relaxed.
- The government increases spending.
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