Demand and Supply for Coffee

DEMAND AND SUPPLY FOR COFFEE 5

Demandand Supply for Coffee

Demandand supply

Theinteraction between the market forces of demand and supply determinesthe quantity supplied by sellers and quantity purchased by consumers.This interaction is balanced in the equilibrium quantity of the twoforces at an equilibrium price. To explore the forces of demand andsupply in the market, this paper will study and analyze the marketfor coffee and in specific, the NescaféCoffee.Through the study, this paper will explore the factors that influencethe quantities of the consumers of NescaféCoffee buy. Similarly, this paper will explore the factors thatinfluence the quantities supplied by the manufacturer of the NescaféCoffee.

Demandfor Nescafé Coffee

Thedemand for Nescafé Coffee is defined by the price of the coffee andthe quantities demanded at specific prices. The price of the NescaféCoffee is one of the main factors that influence the quantitydemanded by consumers. According to Mankiw (2014), if the price ishigh, then the consumers avoid purchasing the product in preferenceof other competing brands if affordable in this case tea. At thesame time, some consumers will opt to buy alternatives to coffee suchas tea and cocoa or chocolate, which reduces the quantity of coffeepurchased. If the price of coffee reduces consumers will purchasemore of the coffee by shifting from other brands and alternatives.

Theprice of alternative products also significantly affects the price ofthe Nescafé Coffee. This influences the quantity of coffee purchasedin two ways price of competing brands and the price of the competingalternatives to coffee. If the price of the competing brands ofcoffee increases without a proportionate increase in the price ofNescafé Coffee, then consumers will shift from the competitors toNescafé Coffee. According to Mankiw (2014), this shift will increasethe quantity of a product purchased, thereby increasing the demand.On the other hand, if the prices of competing brands reduce, withouta corresponding reduction of the price of the Nescafé Coffee, thenconsumers will shift away from buying Nescafé Coffee. This shiftwill lead to a reduction in the quantity of Nescafé Coffee purchasedby consumers.

Similarly,if the prices of the substitute products such as tea increase, peoplewill shift from purchasing tea to coffee. This shift will increasethe general market quantities of coffee purchased by consumers.However, this increase will affect all the brands of coffee, butNescafé Coffee will record a percentage market increase in quantitypurchased by customers. On the other hand, if the prices forsubstitutes for coffee reduce, consumers in the market will shiftfrom buying coffee to buy the substitutes. This will lead to ageneral reduction in market quantities purchased by consumers in themarket which will similarly reflect on the quantities demanded forNescafé Coffee.

Finally,consumer-end factors also affect the quantity of Nescafé Coffeepurchased. For instance, changes in consumer income will affect thequantity of coffee purchased. If consumers’ income increases, thenthey will have higher disposable income to purchase more coffee. Thisleads to an increase in the quantities of Nescafé Coffee demanded byconsumers. On the other hand, if their income reduces, the quantitydemanded for Nescafé Coffee will reduce. Similarly, if theconsumers’ tastes and preferences change in the favor of theNescafé Coffee brand, the quantity of the brand purchased willincrease.

Supplyfor Nescafé Coffee

Thesupply of coffee is influenced by the prevailing market price forcoffee. If the price of the coffee increases, suppliers will tend tosupply more in a bid to increase their revenues. This leads to anincrease in the quantity of coffee supplied in the market. On theother hand, if the price for coffee reduces, coffee supplies, reducetheir supply in the market as a way of avoiding reduced revenues.This in turn reduces the quantity of coffee supplied.

Anotherfactor affecting the quantity supplied for coffee is cost of inputs.If the costs of inputs for coffee increases, manufacturers will onlybe able to produce limited quantities due to the increasing costs.This will in turn lead to reduced supply of coffee. On the otherhand, if there is a general reduction in costs of production ofcoffee, manufacturers will produce more due to the new affordability.This will increase the quantity of coffee supplied in the market.

Moreover,the price of competing alternatives to coffee like tea affects thequantity of Nescafé Coffee supplied. If the price of tea increases,coffee manufactures will shift their production from coffee to tea,which is more profitable. This will prompt suppliers of coffee toreduce their supply of coffee in the market as a way of shiftingresources to tea. On the other hand, if the prices of tea reduce,manufacturers will shift from producing tea to coffee, therebyincreasing the supply of the drink in the market.

Conclusion

Thequantity of coffee, demanded by consumers depends on the dynamicsthat affects consumers and their consumption behavior. Therefore, theprice of coffee and the price of other substitute products willinfluence the quantity purchased. In addition, changes in consumers’income and preferences will affect the quantity supplied. On theother hand, the quantity of coffee supplied is influenced by thedynamics of suppliers such as the market price, price of alternativesand substitutes and the cost of production.

Reference

Mankiw,N. (2014). Principles of Microeconomics.New York: Cengage Learning