How would I draw a diagram to show the change in the retail coffee market that has resulted from cirucumstances described below?
The days of the $3 coffee may be numbered as café owners come under pressure to pass rising costs on to legions of coffee drinkers. In addition to increases in rents, transport costs and milk prices, cafes were within weeks of being hit with higher prices for coffee beans.
According to the Australian Coffee Traders Association, the market price for Arabica beans had gone from roughly $US1.30 a pound to $US1.58 a pound in recent weeks
Tea, coffee and “food drinks” rose 4.5% in the past three months, according to the latest figures, and coffee drinkers thinking of switching to tea will find no respite as tea prices are at record heights. The managing director of tea retailer T2 said,…, ”The demand for tea has increased dramatically, initially as a result of the well being focus on people’s lifestyles. Its very much a global thing.”
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What you will need to do in this case is to draw a supply and demand graph. You will need to use the graph to show the change in the market.
First, of course, you will need a graph representing how the market used to be. You will simply need to draw a supply curve and a demand curve that intersect at some point (perhaps $3 per cup since that is the equilibrium price mentioned in this question.
Next, you will need to draw a second supply curve reflecting the changes that have happened in the market. The change that has occurred is a decrease in supply. The reason for this is that the cost of inputs for a cup of coffee (beans, rent, milk, transport costs) have all gone up. We know that, all other things being equal, an increase in the cost of inputs leads to a decrease in supply. So, you will need to draw a second supply curve to the left of the original.
Once you have done this, you will note that the equilibrium price of coffee has risen and the equilibrium quantity (supplied and demanded) has gone down. This is the change in the retail coffee market that has occurred due to the changes mentioned in the question.
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