Consider the international market for specialty coffee beans with the inverse demand given by P=30-2*Qd and inverse supply given by P=10+2*Qs. (the price is in US$ and quantity is in million 60-kilogram bags). According to the Specialty Coffee Association of America (SCAA), coffee which scores 80 points or above on a 100-point scale is graded \"specialty.\" Specialty coffees are grown in special and ideal climates, and are distinctive because of their full cup taste and little to no defects. The unique flavors and tastes are a result of the special characteristics and composition of the soils in which they are produced (Specialty Coffee Association of America, 2015).

a. (5pt.) Calculate the equilibrium price and quantity and draw a graph to represent them. (Label clearly everything on the graph to obtain maximum points)

b. (15pts.) Calculate the Total Surplus at the equilibrium point and provide a succinct argument as to why the equilibrium represents an efficient allocation of resources in this market.

C. (20pts.) The price of specialty coffee beans rises by $4 above the equilibrium price. i. At this new price, is the quantity demanded equal to quantity supplied? Why or why not? Use the new price to calculate the quantity demanded and quantity supplied and explain what type of disequilibrium can be observed in this market. Page 1 of 2 ii. Will there be any efficiency losses (i.e. decrease in Total Surplus)? Calculate the new Total Surplus and find the Deadweight Loss if any.

d. (10pts.) If one of the locations (Brazil is the largest coffee producing country accounting for 35 and 38 percent of the total world output) in which the majority of the specialty coffee is grown is affected by a severe weather event that wipes out most of the coffee plantations what is most likely to happen in the market for specialty coffee beans? What happens with the equilibrium price and quantity when the market is affected?

e. (20pts.) An economist tells you that the price elasticity of demand for specialty coffee beans is 0.39.

i. Explain the meaning of the price elasticity of demand for the specialty coffee beans.

ii. Is the demand for this type of coffee beans price elastic or price inelastic? Explain how you know this.

iii. Consider that one seller in this market sells 100 kgs/year at the equilibrium price and only 93 kilograms when the price increases by $4. Given the elasticity expressed above, will this seller make more or less, in revenues when the price increases by $4? How much more or how much less? Would you have known the direction of the revenue change using only the price elasticity of demand given above?