1a) Draw and completelylabelaSupplyandDemanddiagram.Clearlyindicate theequilibriumprice (Pe) and the equilibrium quantity (Qe) on your graph.You do not need to use actualnumbersforyourprice andquantity, justuse Pe andQe.Lastly, labelyourgraphthe"WorldMarketforCoffee"onthex-axis.(3marks]

b) Explainbriefly whattheterm"equilibrium"actuallyis,referencingyourgraph.

HAMILTON SPECTATOR Canadians will be paying more for or the cost of beans and cups of coffee In previous years stockpiles of store bought coffee in the New Year, could rise anywhere from 30 to 50 per coffee in Brazil were released to relieve as a shrinking global supply and cent by 2012. pressure when the market became too increasing demand continues to push Coffee closed on the U.S. futures tight, but those supplies were depleted up the price. market for (U.S.) $2.175 a pound [Note: this year, said Hackett. A recent spate of extreme weather like most global markets, the market for He said because of the massive in Colombia paired with a growing coffee uses U.S. Dollars and U.S. units.], profits large companies like Star- taste for higher quality beans and a about double the cost reported the bucks make selling coffee most can diminished global stockpile could same time last year. That price is well afford to eat cost increases until result in a 30 to 50 per cent spike in below historic highs of (U.S.) $3.35 per prices stabilize. prices, according to one U.S. analyst. pound reported in 1977. Ken Hardy, a professor emeri- On Wednesday Kraft Canada Hackett said based on current tus of marketing for the Richard Ivey confirmed that the company's Max- price increases a conservative esti- School of Business, said the smaller well House and Nabob Roast & mate would be (U.S.) $4 per pound by increase like the one from Kraft are Ground coffees will go up in price on the end of 2011. unlikely to impact consumer habits. January 30, 2011, the price of roast Caffeine addicts should try to Hardy, a board member for and ground coffees will go up 7 to 10 relax. Tim Hortons has no immediate Williams Coffee Pub, noted that coffee per cent. Distributors were informed plans to charge more. is a central part of our social habits of the boost a few weeks ago, the com- Typically, Tim Hortons books its and a slight price hike won't deter us pany said. coffee contracts for at least six months from buying. Kraft Canada said the increase at a time, which protects its restaurant C He said if the price for over the "stems from the significant increase owners and customers from jumps counter coffee was going to rise in in world prices for green coffee." in worldwide future markets," said a Canada, the cycle would start with The company boosted prices twice spokesperson in an email. Tim Hortons. on popular coffee brand products Starbucks said no one was avail- "I think they are the dominant in 2010, the last increasing roast able to comment. buyer and dominant retail chain . . . and ground coffee by as much as b The shortage is being caused by they would be the price setter for most 12 percent and instant coffee by several factors, but poor weather in coffees." 16 percent. Colombia is key, he said. If prices do rise above $4 and a South of the border Kraft Torrential rainstorms have resulted hefty price hike is passed down to Foods Inc. cited the same cause was in loss of life and heavy damage to the consumers people may start rethink- behind Wednesday's boost for current crop. Last year production was ing how much they drink and from Maxwell House and Yuban coffees, down 35 per cent and it was hoped they where, he said. with roast and ground coffee prices up would recoup those losses in 2010, said Some companies, like Starbucks, 12 per cent and instant coffee prices Hackett. don't have a great deal of room to up about 4 per cent. Colombia is the largest producer manoeuvre, he said. Shawn Hackett, president of of high-quality, mild washed Arabica. "They are already near the ceiling Hackett Financial Advisors, Inc., "That is your Starbucks kind of cof- of price tolerance." a brokerage firm specializing in fee," said Hackett. "The shortest sup- agricultural commodities in Boynton ply is in that kind of coffee which is in Source: Reprinted with permission - Torstar Syndi- Florida, predicts "actual coffee prices" the highest demand." cation Services.Key Points in the Article a cup as there would be less competition for people might start bringing their own cof- the coffee that was grown. fee to work or school in travel mugs. Other This article discusses the impact that weather and tastes in different parts of the b The weather in another part of the people might give up something else, such world can have a large impact on your as going to the movies, so that they can still world have on the prices Canadians have life. Bad weather in Colombia can make have their morning coffee at the local coffee to pay for a cup of coffee. Bad weather in your morning cup of coffee more expen- shop. People can change their behaviour in Colombia means less coffee is available for sive, an earthquake in Japan can make response to a change in prices in a number the entire world. As the global population electronics harder to get, and brush fires in of ways. grows and becomes wealthier, more and Russia can make bread cost more here. more people want to start their day with a cup of coffee. These factors combine to in- C Some companies are so important to their markets that other companies fol- Thinking Critically crease the price of coffee. low their lead. In the Canadian coffee shop 1. According to the article, heavier-than- market, Tim Hortons is the leader. Many normal rains in Colombia reduced the Analyzing the News smaller firms like Starbucks or Second Cup amount of coffee grown there, which Coffee beans are bought and sold in a are hesitant to increase their prices if Tim led to an increase in the world price of a Hortons does not. This competition among coffee. What do you think would happen global market; companies from all over the world come together to buy and sell sellers can limit the impact of raw material if the weather in Colombia was particu- coffee beans. It is this global market that price changes on consumers, at least for a larly good for growing coffee this year? while. What do you think will happen to the determines the price of the basic ingredient of your moming brew. Price changes in this When the price of something goes up, price of coffee if weather patterns all market change the price of coffee not only people often respond by changing their over the world become more extreme? for Canadians but also for people all over behaviour. For example, if the price of 2. How do you think you would react if the coffee were to double and stay high, you price of a cup of coffee doubled? How the world. might switch to drinking tea, hot chocolate, do you think most people would react? If suddenly coffee became very or another less-expensive beverage before What do you think that would mean for unpopular in a country like the United States, Canadians would likely have to pay less for class starts to save some money. Some the owner of your local coffee shop