"A freeze in Brazil's coffee growing region will lower the price of coffee." Is this statement true or false, and why?

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

This statement is false.

If Brazil's coffee growing region experiences freezing temperatures (I'm assuming this hurts coffee plants just like any other plants), then there will be less coffee produced.  This, of course, leads to a reduction in supply.

A reduction in supply is represented on a graph by the movement of the supply curve to the left.  Assuming the demand curve remains constant, a reduction in supply leads to an increase in the equilibrium price of the good or service in question.

So, all other things being equal, a freeze in the coffee-growing region leads to an increase in the price of coffee.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

A freeze in Brazil's coffee growing region will reduce the production of coffee in that region. As Brazil is a major coffee producer in the world, this will reduce availability or supply of coffee in the world. As per economic principle of downward sloping demand curve this will tend to increase the market prices of coffee. AS per this law, other factors remaining constant, the quantity of a product demanded or purchased by customers decreases with increase in prices. Stated in another way the suppliers can sell higher quantities alt lower prices and lower quantities at higher prices. As with reduced production of coffee, the coffee growers will have lower quantities to sell, they can sell all the quantities of coffee they have at higher prices. Again as per principles of economics, the coffee growers will charge the highest prices they can get for the available quantity of coffee the world prices of coffee will rise.

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