Question

Who controls the supply for coffee shops and based on what factors?

Answer 1

The correct answer is the following: "Market prices control the supply for coffee shops and it is also affected by other factors such as: price of inputs and production costs and technology developments".

The supply function represents the quantity of a certain good or service that producers are willing to offer in the market at different price levels. The law of supply states that there is a direct relationship between price and quantity supplied (ceteris paribus, hence, given that the rest remains equal).Therefore, when the price charged for coffee increases, the amount that producers are willing to offer increases too.

Moreover, there are other factors that determine the quantity supplied, because variations of those factors shift the supply curve:

• Price of inputs: when the price of inputs increases, production costs decrease and suppliers are willing to offer a larger amount of output. The supply curve shifts right.
• Technology developments allow to produce more efficiently and sellers are willing to produce and offer a larger amount of output in the markets. The supply curve shifts to the right.

Answer 2

Besides the high demand and cost for gasoline these days, coffee is considered the second most traded commodity on worldwide markets next to oil. "Coffee is grown in more than 50 countries in a band around the equator and provides a living for more than 20 million farmers. Altogether, up to 100 million people worldwide are involved in the growing, processing, trading and retailing of the product" (Spilling the Beans, ). In 2001, coffee farmers and plantations produced over 15 billion pounds of coffee while the world market only bought 13 billion pounds. The overproduction in the coffee industry is not a usual thing and is one of the major reasons why prices vary throughout the industry.