In chapter two we learned that in highly competitive markets the price of an item changes because of a shift in the demand curve or a shift in the supply curve. Suppose the price of coffee in world markets falls by 10%. Is there a way to find out whether the fall in the price is due to a change in the demand or the supply? What other piece of information would you need to answer the question?

Hint: Draw a demand and supply diagram. Shift the demand curve in a way that results in a fall in the price. Now draw another demand and supply diagram. Shift the supply curve in a way that results in a fall in the price. These two graphs should help you answer the question.