Law of demand: the principle that there is inverse relationship between the price of good or service and the quantity the buyers are willing to purchase in a defined time period, ceteris paribus. First what is the Difference between 1. Change in quantity demanded and changes in demand. 2. Change in quantity supplied and change in supply? 1. Change in quantity demanded: Changes in price occurs change in quantity demanded, along the curve. 2. Change in demand: Changes in non-price determinants occurs change in demand, it shift the curve. • None price determinants of demand: 1. Number of buyers, ...view middle of the document...
Technology, 3. Input prices, 4. Taxes and subsidies, 5. Price expectations, 6. Price of other goods and services
a. A severe frost destroys much of the Brazilian crop. In this situation the supply will decrease. The market will face the shortage, because there will not enough supply to fulfil the market demand. b. Coffee is shown to cause cancer in laboratory experiments on mice. Here the demand will decrease and will cause surplus in the market. c. The price of tea declines sharply in the next few months in production. It will decline the demand of coffee. It is substitute of coffee; as a result there is a direct relationship between a price change for one good and the demand for its competitor good. d. Coffee prices are expected to rise rapidly in the next few months. This price expectation will effect current supply, in this situation the suppliers will restrict the current supply in order to have more coffee to sell at higher prices in the next few months. The current supply curve will shifts to the left. There will be shortage in equilibrium condition.
e. Workers in the coffee industry will charge high wages. Natural resources , labour, capital, and entrepreneurship are all required to produce products, and these affect the supply. This increase in the wages adds to the cost of production. As a result, the supply of coffee decreases because sellers must charge more than before. Shortage.