Use supply and demand curves to illustrate the impact of the...

Use supply and demand curves to illustrate the impact of the following events on the market for coffee: a. The price of tea goes up by 100 percent. b. A study is released that links consumption of caffeine to the incidence of cancer. c. A frost kills half of the Colombian coffee bean crop. d. The price of Styrofoam coffee cups goes up by 300 percent.

Transcript

00:01 So let's start off by drawing a market, right? that's how i would always do this.

00:04 I would start by drawing the market, quantity and price, a supply curve, a demand curve, right? again, remember, the supply curve is firms, people who produce coffee, and the demand curve is buyers.

00:17 So for a, right, and we're going to start at this initial equilibrium right here.

00:23 For a, the price of t goes up by 100%.

00:27 So the price of tea is going up a lot.

00:30 Now, my argument here is that this is a substitute, right? and so when tea gets expensive, coffee looks more appealing, right? tea has gotten really expensive.

00:47 So some people give up on tea and start drinking coffee instead, which leads to an increase in demand, right? so the demand curve here is going to shift out, right? the demand curve would increase people give up in tea and buy coffee instead so the price is going to increase and the quantity is going to increase right as we move up here for a for b we've got a different story where we have a frost.

01:16 So this is going to pretty quickly, right, reduce supply, right? there is simply less of this stuff available.

01:23 It doesn't matter how much you want.

01:25 It doesn't matter how much you're willing to pay for it.

01:26 There are just physically fewer things.

01:30 Oh, sorry, this is c, not b.

01:32 We'll do c.

01:33 Reduce supply.

01:34 So supply falls, right? and if supply falls, right, supply is going this way, we go up here...