Question

First Economic Assignment Economy of Starbucks Coffee and Folgers Coffee Plot the Starbucks graph using 10 cups of coffee for Q and $20.00 for P as point A (equilibrium). Plot the Folgers Coffee graph using 10 cups of coffee for Q and $10.00 for P as point A (equilibrium). -Determine which goods are normal and inferior goods. « Supply and Demand 1) Hurricane destroys coffee bean farms, thus decreasing production by 2 cups of coffee. 2) Recession hits California, hence income decreases thereby increasing/decreasing consumption by 2 cups of coffee.. 3) Which market(s) is/are experiencing a market failure?" te t ¢ ¢

Answer 1

Answer:

Starbucks graph

Starbucks Price of coffee 2 4 6 8 10 Quantity Demanded for coffee

Folgers graph

Price of Folgers coffee M S 에 이 이 468 10 Quantity Demanded for coffee

As compare to Folgers coffee Starbucks is a normal goods and Folgers coffee is an inferior goods.

Supply and Demand:

1. When hurricane destroys coffee bean firms, thus decreasing production by 2 cups of coffee. In this situation, the supply of the coffee beans decreases due to hurricane. This situation is called shortage.

2. When recession hits California, income of the people decreases. As consumers relative income decreases, they will demand more of inferior products rather than normal products. So, the demand for Folgers coffee will increases because as compare to Starbucks it is cheaper.

3. Hurricane destroys coffee beans and do increase scarcity but it does not reduce the ability of markets to respond scarcity. When recession hits California, it definitely effects adversely on income but it can not be considered as market failure.