Question

4) The world price of coffee has declined in real terms over the past 50 years. In 1950, coffee was priced at just under U.S. $3 per pound (in 1994 dollars), whereas by 1995 the world price had fallen to just over $1 per pound. On July 29, 1995, The Economist magazine reported that On July 26 the Association of Coffee Producing Countries agreed in New York to limit exports to 60m bags for 12 months. The current level is 70m bags… Coffee prices rallied a bit on the news, but few expect the pact to last; some big coffee producers such as Mexico have not signed up, and even those who have will probably cheat.

. By 2001, the price of coffee was approximately U.S. $0.65 per pound. Was the cartel successful?

Answer 1

A cartel is deemed to be successful when it is able to restrict the supply of the good in such a manner that it leads to increase in price.

So, coffee cartel would deemed to be successful if it has been able to restrict the supply of coffee in such a fashion that price of coffee would have been increased.

However, in reality, the price of coffee has decreased.

This implies that cartel is not been able to restrict the supply of coffee in successful fashion. This may be due to increase in supply of coffee by countries who are not part of cartel or due to cheating by some members of the cartel itself leading to lower price of the coffee.

So,

It can be stated that cartel was not successful.