Question:

What happens to the price/quantity?

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If poor weather has a negative effect on the coffee crop, but advertising by Starbucks boosts the demand for coffee; what will happen to the price and quantity sold?

I think that the supply curve will shift left, and the demand curve will shift right. But how do I know what happens to the quantity sold?

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3 ANSWERS


  1. You are right that the supply would go left and the demand would go right.  However, you don't have enough information on the magnitude of the shifts to know whether the quantity increases or decreases.  Therefore, the change in quantity is unknown.


  2. Poor weather will reduce supply = leftward shift of supply curve

    Advertising will increase demand = rightward shift of demand curve.

    In result equilibrium price will increase but result on equilibrium quantity is unknown - because we don't know by how much supply is reduced and by how much demand increased.

  3. The margin on coffee is so big that changes in supply will have no affect on the selling price.

    Starbucks sell aspirational products, the more you pay, the better you think it is.

    If they put the price up. they sell more coffee, not less as you might expect.

    In essence they have already done this, a basic coffee can be had for less that 1 pound, in Starbuck, you could be paying 3-4 pounds for essentially the same product with a fancy name.

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